2014 | INVESTMENT MANAGEMENT INDUSTRY REVIEW

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Berkshire Capital is an independent employee-owned investment bank specializing in M&A H. Bruce McEver R. Bruce Cameron Caleb W. Burchenal (212) 207 1001 (212) 207 1013 (303) 893 2899 [email protected] [email protected] [email protected] in the financial services sector. With more completed transactions in this space than any other investment bank, we help clients find successful, long lasting partnerships. Richard S. Foote Robert P. Glauerdt T ed J. Gooden Founded in 1983, Berkshire Capital is headquartered in New York with partners located in (212) 207 1012 +44 20 7828 0024 (212) 207 1043 Philadelphia, Denver, London and Sydney. Our partners have been with the firm an average [email protected] [email protected] [email protected] of 12 years. We are recognized as a leading expert in the wealth management, money management, alternatives, real estate and broker/dealer industries. We believe our success Bomy M. Hong John H. Humphrey D. Scott Ketner as a firm is determined by the success of our clients and the durability of the partnership we (212) 207 1825 +44 20 7828 2211 (212) 207 1042 help them to structure. [email protected] [email protected] [email protected]

Jordan E. Mann Ian Martin Richard D. Miles (212) 207 1048 +61 2 9221 2271 (212) 207 1830 [email protected] [email protected] [email protected] NEW YORK LONDON 535 Madison Avenue, 19th Floor Cayzer House Drew R. Murphy Mitchell S. Spector Jonathan Stern New York, NY 10022 30 Buckingham Gate (212) 207 1824 (212) 207 1828 (212) 207 1015 (212) 207 1000 London, SW1E 6NN [email protected] [email protected] [email protected] United Kingdom DENVER +44 20 7828 2828 999 Eighteenth Street, Suite 3000 Denver, CO 80202 (303) 893 2899 Berkshire Capital Securities Limited is Authorised and Regulated by the Financial Conduct Authority (Registration Number 188637).

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Richard M. Fuscone George W. Morriss P atrick von Stauffenberg (212) 207 1000 (212) 207 1000 +44 20 7828 2828 [email protected] [email protected] [email protected]

www.berkcap.com www.berkcap.com RUNNING OF THE BULLS declined even slightly to back off from its current policies it clearly has no intention of doing so any time soon.” (In December,in September, the when market the took stock in marketstride the reached Fed announcement record highs,

bullishinvestor @stocklover Forget emerging mkts. Forget financial crisis. that it would begin the tapering process in January 2014 by Forget questionable employment data. Join USA thetrimming summer, $10 there billion were from worrying its $85 billionsigns of in a monthly gathering bond bubble. equity party! (Option 2: savings account. Not!) purchases.) Still, as the market continued its climb following #USstocksrock Reply Retweet Favorite dot-comFor all its stocks potential that and wowed the investor the investing frenzy public around during the IPO, the or those investors fortunate enough to score shares Twitter remains unprofitable, for example, much like the in Twitter’s $2.1 billion initial public offering last returned to levels last seen in 2000, with companies raising FNovember, the 73% pop in the stock on opening late 1990s before imploding in 2000. The U.S. IPO market day capped what was a banner year for equities. With the Indeed, by the second half, bulls and skeptics were debating $52 billion through early November, according to Dealogic. giving and giving in 2013, with all three major indexes was one, as it climbed throughout the year and reached generatingexception of strong a few double-digitfits and starts, returns U.S. stock and marketsadding one kept various data points to buttress their positions. Margin debt more positive year to an improbable string of annual gains since 2009. Passive Gains who’d been hiding out in money markets and bond funds 2013 U.S. MUTUAL FUND FLOWS (EQUITIES) Importantly, the pros were finally joined by retail investors $ billions negativefor four years. $83 billion In the during first three the samequarters, period equity in 2012 fund and anet sea inflows of red inink the between U.S. were 2009 $114 and billion, 2011, comparedaccording withto the ACTIVE Domestic Equity ($12.0) International Equity $109.3 fundsInvestment and equity Company exchange Institute. traded In November,funds (ETFs) Strategic of all types Insight projected that net inflows in 2013 for equity mutual Sector Equity $19.3 within the the U.S. total would at the top end $450 of billion.2012. In Money 2008, market investors funds, had PASSIVE parkedwith $2.4 $3.8 trillion trillion in assetsin money in September, market funds remained — more level than they held in equity funds. Domestic Equity $59.0 Vanguard International Equity $37.2 Total Stock Market index fund became the largest Domestic Equity ETF $132.4 mutualIn a reflection fund last of theyear change by overtaking in sentiment, one of the the biggest International Equity ETF $55.7 the Pimco Total Return bond fund. Vanguard’s broad- Sources: Morningstar, Strategic Insight (ETF data) beneficiaries of the post-financial crisis flight to safety, based U.S. equity index added $77 billion in assets in the Novemberfirst 10 months American of 2013 Association to total $288 of Individual billion, while Investors’ Total Return saw its AUM drop $38 billion to $248 billion. In the Deutsche Bank warned in July that “Investors themselves as “bullish” compared with the long-term havea record rarely $401 been billion more on levered the New than York today,” Stock adding Exchange that in averageSentiment of 39%,Survey, while 46% only of respondents 22% said they characterized were “bearish,” September. or 9 points below the long-term average. High net worth range of charts tracking margin debt and markets over margin debt was a “red flag” for markets. Employing a U.S. Trust “We should expect the amount of margin debt that these surveyinvestors of individualsjoined Main with Street more in chipping than $3 awaymillion at in their decades, the Philosophical Economics blog countered: 4-year-old wall of worry. In a comprehensive are borrowing against. Thus, we should expect the total higher priority than asset preservation — a nearly exact quantityinvestors of take margin on to debt vary in with existence the size to ofvary the with portfolios the total they investable assets, 60% said asset growth had become a capitalization of the stock market.” The stock market gains have in large part been driven by the reversal from the survey’s findings in 2012. Federal Reserve’s unprecedented monetary policy, which has made equities virtually irresistible. “Forget fundamental citingTwo high-profile their differing Ivy viewsLeague on academics, a valuation Robert method Shiller known analysis,” wrote Financial Times and Jeremy Siegel, debated the level of exuberance by in October in reviewing the stock market. “It is all about price-earnings ratio applies a p-e ratio based on earnings liquidity. The fear of tapering is offcolumnist the table. Henny If the SenderFed overas “Cape.” a 10-year Developed period, by tracking Shiller, the correlationcyclically adjusted with

INVESTMENT MANAGEMENT INDUSTRY REVIEW | 2014 1 Through the third quarter, the European fund industry markets back to 1871. Shiller, noting a 24 Cape ratio in equity funds and another €89 billion for mixed-asset September, expressed his concern about a “rather highly had attracted €55 billion ($75 billion) in net inflows for standardspriced” market. that make But Siegel markets argued appear that richer Shiller’s than earnings they are data are flawed, distorted by recent changes in accounting funds, according to Lipper. Money markets saw net his reading of the Cape signaled the market had room thirdoutflows week of of€69 October, billion. marking In the U.S., the investors 17th consecutive parked a week in reality. Siegel, author of “Stocks for the Long Run,” said record $5 billion in European equity funds during the suggested an expansion of p-e ratios. recovery. Societe Generale analysts began banging the to run, particularly as low interest rates and inflation drumof positive for more inflows in a by report investors that month, counting advising on an economic investors

economic policy is much clearer, monetary policy very Reversal of Fortune loose“to switch and positioninginto eurozone is low.” and Japanese equities, where U.S. MUTUAL FUNDS $ billions negative territory, with investors particularly concerned aboutIn Asia the and growth Latin America,prospects numerous in emerging indexes markets, were as in well as the impact of potential Federal Reserve tapering 2007 2008 OCT. 2013 Equity 6,516 3,704 7,407 those markets. But Japan’s economic stimulus efforts Hybrid 719 499 1,198 on both growth and the flow of investment dollars to quantitative easing and public spending combined with Bond 1,679 1,567 3,340 someunder economic Prime Minister reforms Shinzo — made Abe the— a nation’s mix of aggressive stock market Money Market 3,086 3,832 2,669 one of the global darlings. Through early November, the

Source: Investment Company Institute For asset managers, the return of animal spirits was good Nikkei 225 index was up 38%.

In Europe, markets were also delivering amid performances,news, with the withpublicly the tradedasset managers firms delivering component strong of the microscopic interest rates and a hoped-for economic growth in earnings and AUM. Stocks prices reflected those recovery that to date has remained phantom-like. In November, the European Central Bank cut rates TheDow world’s Jones U.S. largest Total asset Market manager, Industry BlackRock Group rising, delivered 44% for the year, compared with 32% for financial firms as a whole. to a record low 0.25%, as deflation fears surfaced, Affiliateda 14% increase Managers in net Groupincome, a in proxy the third for a quarter range of over asset while third-quarter economic growth in the eurozone the year-earlier period while AUM rose 12% to $4 trillion. flattened out amid European Commission projections for structure, saw third-quarter Tighter Margins netmanagers income given climb its 37% affiliate while NORTH AMERICAN ASSET MANAGER PRE-TAX OPERATING MARGINS billion mark. At ETF provider WisdomTreeAUM rose 22% Investments to top the $500, net

2007 2008 2009 2010 2011 2012 Top-third firms * 47% 49 40 42 46 44 income jumped 230% to $15 Schrodersmillion while reported AUM increased record Average 33% 30 22 27 28 28 87% to $31 billion. In the U.K., * As measured by pre-tax operating margins nine months. Source: McKinsey Asset Management Benchmarking Survey profits and AUM for the first For dealmakers, 2013 was also eventful, with Europe a particular center of activity, negative growth for the full year. Nevertheless, by early November, the optimists had driven stock markets in region’s asset management industry continued to play out.as the In post-financial the largest such crisis transaction, shakeout and that the is reshaping largest deal the of 2013, Orix Corp. normallytwo of Europe’s conservative biggest retail basket investors cases, Greece were coming and Spain, for Robeco, the asset management unit of Rabobank. outup 27% of their and shells. 22%, respectively.In the 2013 Natixis As in the Global U.S., Europe’s Asset Although Rabobank of Japanemerged paid from €1.9 the billion crisis ($2.6 with billion) a solid Management Continental European respondents agreed that “the level restructuring and raising additional capital. In 2011, of risk I am willingsurvey to oftake individual is increasing” investors, — the 63% highest of balance sheet, the Dutch firm has neverthelessBank been Sarasin percentage of any region in the world. & Cie, for $1.1 billion. Orix, meanwhile, is representative Rabobank also sold its Swiss private bank, 2 for government-controlled Irish Life in a deal that gave it acquisitions to compensate for slower domestic growth control of Irish Life Investment Managers, Ireland’s largest andof Japanese negative firms demographic flexing their trends. muscles For Orix, again ownership with overseas asset manager. Outside Europe, Dutch bailout recipient of Robeco extends its footprint into Europe, while the ING relationship with Rabobank (which retained a 10% stake in Robeco) opens up collaborative opportunities. Orix was remaining divested asset its Southmanagement Korean businessasset manager in Asia. (as The well buyer, as its joined by Nippon Life Insurance, which took a stake in MacquarieSouth Korean Group life insurance of Australia, business), took the leaving opportunity it with toone Principal Financial’s high-yield boutique, Post Advisory enhance its existing asset management business in that Group nation, but sold its interest in an Indian wealth joint venture, collaborative potential emerging from the deal. as well as its Canadian wealth business. . As with Orix and Rabobank, the two firms see New York Life also took a major step into Europe with the Hedge fund deals were modest, but the industry did draw Dexia Asset a number of major buyers, including Carlyle Group, Management, a unit of Franco-Belgian bailout recipient Dyal Capital (a fund managed by Neuberger-Berman), €380 million ($514 million) acquisition of Franklin Resources, KKR & Co., Man Group, and TPG Capital Management. Investment Management Transactions Principal Financial investment in as many years byKKR taking made a itsminority second stake hedge in fund 2009 2010 2011 2012 2013 Nephilia Capital, a specialist Majority Equity 115 115 119 127 129 in reinsurance investments related to natural catastrophe Minority Equity 5 15 15 29 20 and weather risks. Franklin Management Buyout 15 13 10 13 10 Resources built on its 2012 Total 135 143 144 169 159 acquisition of fund of hedge funds manager K2 Advisors Total Transaction Value ($B) $31.7 $21.2 $10.3 $12.6 $14.8 Holdings by assuming full Total AUM Changing Hands ($B) $3,300 $1,134 $756 $1,133 $1,636 control of a hedge fund in which it held a minority stake, Pelagos Source: Berkshire Capital Securities LLC Capital Management. Banks and insurers continued to divest their private equity interests, Dexia with the largest deal involving a management buyout of billion and made it a force on the global asset management AXA’s $31 billion private equity business. . The deal brought New York Life’s total AUM to $490 Lloyds Banking Group, continued to pare operations withscene. several Another divestitures high-profile of assetcasualty managers. of the financial The largest crisis, CazenoveIn the U.K., Capital Schroders in a put deal its that solid teams balance two sheet of the to oldest work Scottish namesby paying in British £424 million asset management. ($645 million) It forwas wealth by far managerthe Widows Investment Partnership to Aberdeen Asset Managementinvolved the £550 million ($885 million) sale of the £200 billion Aberdeen already managed, making largest wealth deal in a sector characterized by modest it Europe’s largest. The publicly deal added traded £136 asset billion manager. in AUM to unittransactions. it set up inIn 2011,the U.S., taking Affiliated a minority Managers stake Group in Clarfeld made Additionally, Aberdeen paid $180 million for American Financialits second Advisorsacquisition through the AMG Wealth PartnersFocus Artio Global Investors and took a Financial Partners and United Capital Partners cut majority stake in private equity fund of funds manager multiple deals and wereof New joined York. by Wealth an aggressive aggregators Florida SVGfixed Advisers income firm. Banyan Partners Credit Suisse Fiera Capital Corp. mode, as it sold its J O Hambro Investment Management millionfirm, for two wealth managers. Two Canadian while firmsCanadian opened Imperial their was another major firm in restructuring Bankwallets of to Commerce expand in theponied U.S.: up $210 million for Atlantic paid $156 of private equity businesses, while it acquired Morgan Trust Private Wealth Management. Stanleybusiness in the U.K., its European ETF business, and a couple The real estate advisory sector drew several marquee buyers, including Ares Management, BlackRock, BTG ’s European, Middle East and Africa wealth unit. Pactual, Carlyle and TIAA-CREF. BTG, the ambitious The Swiss bank is focused on expansion in the wealth business.)management In a arena, billion-euro though deal, it is quittingSantander dozens of marginal Regions Timberland Group, a deal that made it the markets. (Morgan Stanley also sold its Indian wealth Brazilian investment bank and asset manager, acquired Warburg Pincus and General Atlantic sold 50% of bankingits asset managementgiant engaged business in its own to round U.S. private of capital equity raising. firms acquiringlargest timberland MGPA, a globalmanager private in Latin equity America. real estate BlackRock advisory , as the Spanish Canada’s Great-West Lifeco paid €1.3 billion ($1.7 billion) doubled the size of its real estate investment platform by * * * INVESTMENT MANAGEMENT INDUSTRY REVIEW | 2014 firm with $12 billion in AUM. 3 distortions created by central banks’ unprecedented finally breathed a mass sigh of relief and embarked on monetary policy were playing out in the range of aFive remarkably years after robust the financial equity buying crisis, spree,investors in the in theprocess U.S. investments last year. Triple-C bonds, which are

Average to record highs, while driving Nasdaq a or higher of default, had pulled in a record $38 billion significantpropelling thestep S&P in the 500 direction and Dow of Jones the all-time Industrial high worldwidedefined by Standardby early November, & Poor’s as according having a 50%to Dealogic. chance reached before the dot-com crash. In Europe, investors In fact, demand among yield-starved investors was so went out on a limb with wagers on nations such as high, Triple-C yields dropped by 2 percentage points from 2012 while spreads narrowed with more credit- economic calamities. worthy Double-B bonds. In Europe, bond issuance by Greece and Spain still in the throes of 1930s-style companies that don’t even merit a credit rating has also been rising, while Greek companies were able to raise a more than a few may have tweeted their thanks to BenAs the Bernanke holiday atspirit year-end enveloped as he investors prepared in to the leave U.S., high-yield issuance as a whole reached a record €79 record €4 billion ($5.4 billion) by November. European his Fed post in January 2014. Doubtless, many were billion ($106 billion) in November, according to Credit Suisse. Who’s Selling trillion mark for the second consecutive year, led by NUMBER OF TRANSACTIONS BY SECTOR AS % OF TOTAL In the U.S., investment grade U.S. bonds topped the $1

fromVerizon the Communications’ tens of thousands record of distressed $49 billion properties bond sale. 5% 6% 6% acquiredThe U.S. rental by investors securities in recent market years, was newlymost notably hatched 8% private equity firms. In November, Blackstone, which 14% 12% has spent billions buying homes, sold the first such 40% 38% family rentals. The Triple-A portion of the bond 35% 36% security, a $479 million bond built on 3,200 single- For the asset management industry, and in particular delivered a rate 115 basis points above Libor. 2012 2013 equity managers, the news in 2013 has been nearly all good, though more than a few investment pros were VALUE OF TRANSACTIONS BY SECTOR AS % OF TOTAL glancing over their shoulders at the ghosts of 2000 and 2008 as the year closed. Cerulli Associates projected 4% 2% the industry worldwide would hold $70 trillion in 6% 7% 6% 2008. Institutions should help drive that number to 5% $90AUM trillion by the byend 2017, of 2013 the —researcher $20 trillion opines. more In than line in with long-term trends, a disproportionate share of 58% 61% 29% 22% those gains has been enjoyed by a small group of global players. In its latest survey of the asset management industry,

2012 2013 covering the year 2012, McKinsey notes that the

Money Management Hedge Fund/Hedge Fund of Funds thatworld’s naturally 20 largest dominate firms thecontrolled domestic a stunning market are 49% faring of Wealth Management Real Estate AUM, up 14 points over a decade. The American firms Private Equity/Other flow into European-domiciled funds between 2008 very well overseas, too, having grabbed 50% of the net

Source: Berkshire Capital Securities LLC to a “select group of firms whose conviction to invest behindand 2012. major Moreover, growth trendsgrowth have in 2012 [sic] was enabled confined them to gain share.” Over the next five years, the “winning players” will be those “that focus on finding the spots encouraging her to keep the faith with Ben. In Europe, where organic growth will concentrate,” the consulting tweeting away to the new dovish Fed chief Janet Yellen firm suggests, and “willing to act with the level of aggressive stimulative efforts to fire up economic conviction necessary to address the complex needs of activitycentral bankand stave head offMario deflationary Draghi is pressures,pursuing his as ownis Bank sophisticated investors.” Within that context, the effort by large asset managers that fall outside the top-20 to While these efforts have had an uncertain impact on of Japan Governor Haruhiko Kuroda. the various economies at ground level, there’s no doubt capitalize on the travails of European competitors via they have helped juice returns in stock markets. But the major acquisitions is understandable. Last year, that 4 included such firms as New York Life and Aberdeen respectively, in latest the Towers Watson rankings of MONEY MANAGEMENT theAsset largest Management, global asset ranked managers. No. 49 and No. 60, faces, including costs that have been rising faster than $11 million in assets, employing the same value-driven McKinsey does highlight several challenges the industry Iphilosophyn 1983, Wally as Weitzfellow launched Omaha resident his investment Warren firmBuffet. with 20% below pre-crisis levels, and broad differentials amongrevenues firms and in AUM, profitability, profit levels not thatto mention as of 2012 regulatory were Weitz Value stirrings on both sides of the Atlantic. In Washington, FundQuickly, — Weitzwhich showed included he Buffet’s wasn’t owntoo shabby Berkshire an investor Hathaway D.C., an arm of the Treasury Department released a companyeither. Between as a core 1990 holding and 2000, — delivered his flagship average annual report last year warning about threats to the financial returns of 21%. system posed by the asset management industry. If accepted — and the industry is lobbying aggressively to counter the report — it could place the largest asset a place on the Forbes Honor Roll of fund managers and That performance won Weitz numerous plaudits, including managers in the same “systematically important” bucket as the nation’s largest banks and thereby set the the moniker of “Omaha’s new value king” from Louis stage for tougher regulation. Ruckeyser, hostValue of the Fund popular and the“Wall larger Street Weitz Week” Funds TV show. Those returns also ensured steady inflows into the billion in assets while continuing to Who’s Buying family. By 2005, the Value Fund had $4 positive returns during down years. outpace the Standard & Poor’s 500 with 2009 2010 2011 2012 2013 in 2007-2008, when it lost half its value, Money Manager 34 37 34 36 36 butWeitz in Value’sthe three streak years came through to an August abrupt 2013 end the fund regained its stride, outpacing Financial 16 22 26 24 32 Bank 14 11 15 26 24 The Wealth Manager 23 19 28 23 13 Wallthe S&P Street 500 Journal by a percentage chronicled point last June, with a 19.4% average annual return. Yet, as MBO 15 13 10 13 10 lesser, active fund managers in scrambling Insurance Company 2 5 2 13 9 Weitz has joined legions of other, and Securities Firm 11 17 9 9 9 to find new investors. Today, his Value Trust Company 8 5 3 2 6 atFund the has time just of the$1 billion Journal in article AUM, andlast Junethe Real Estate Manager 5 6 4 5 4 wasfact thatconsidered it had inflows notable of enough a mere to $1 include million Other 7 8 13 18 16 in the story. “We’re a good house in a Total 135 143 144 169 159 neighborhood [investors] don’t want to be Journal. Source: Berkshire Capital Securities LLC in,” Weitz told the the house is that it charges a 1.2% fee. In Part of the reason investors aren’t buying index and exchange traded funds, the rent is a lot cheaper. notwithstanding, the industry continues to provide The iShares Corethe S&PPlain 500 Jane ETF neighborhoods has a fee of 7 populated basis points, by plentyThe McKinsey of opportunity. numbers If andprofitability related challenges overall is down, for example, while the Vanguard S&P 500 fund charges return on equity remains higher than in other areas a fee of 17 basis points. The other related reason is that of financial services, such as banking and insurance. investors, shaken by the inability of active managers to divine the 2008 crash or beat indexes on a consistent and focused boutiques remain profitable and continue And while size confers significant advantages, nimble summed up the current environment in a recent report also engaged in their own version of bulking up, basis, don’t see why they should pay higher fees. McKinsey whetherto attract through assets and acquisitions add value or for by clients. creating Many links are to increasingly moving away from traditional relative return on the asset management industry: “Industry flows are the way to $90 trillion (if we accept Cerulli’s educated guess)the dominant is a lot players.of money. After Even all, if $70the bigtrillion boys in account AUM on for intofunds these and categoriestoward three from growth 2008 areas: to mid-2012 passive — products, a stark half the pot, that still leaves an awful lot of money on solutions and alternatives. More than $1.3 trillion flowed the table for everyone else. return equity funds over that same time frame.” contrast to the $670 billion in outflows from relative In 2013, a year marked by the retail investor’s return to

INVESTMENT MANAGEMENT INDUSTRY REVIEW | 2014 equities, the active vs. passive trend was uneven. In the U.S.,5 Mariner Holdings continued its run of purchases via its Montage Investments asset management broad-based actively managed U.S. equity funds continued Serial acquirer to experience net outflows, of $15.1 billion in the first 10 managers valued at $9 billion. months, compared with net inflows of $48.3 billion for U.S. unit. In total, there were 61 deals last year for money equity index funds, according to Morningstar. U.S. equity ETFs had net inflows of $87 billion during the same period, MassMutualMutual life insurers have been notable buyers of money according to Strategic Insight. But Morningstar data show managers since 2012, including New York Life and amountthat actively of passive managed international U.S.-based equity international funds — equity suggesting funds funds from Highmark. Last year, Capital Nationwide Management Mutual stepped. The Ohio- into had strong net inflows of $87.5 billion — three times the that investors are more willing to pay for expertise in the market to cut a deal for 17 equity and fixed income unfamiliar territory. funds through its Nationwide Funds billionbased insurer,more with which the hasacquisition. some $45 In billion an interview in AUM with in 91 unit, added $3.6 The rise of indexing is also reflected in the declining fees on all equity funds (excluding ETFs): In 2012, the latest MutualFundWire.com,Highmark Nationwide covers, suchFunds as president international Michael year for which figures are available, fees averaged 77 Spangler said advisorsequities are and demanding small- and funds mid-cap in areas growth. “We also think that we can leverage our Money Management Transactions distribution abilities across Nationwide to promote these funds,” he said. Highmark will continue to subadvise nine of the 2009 2010 2011 2012 2013 funds, with the additional eight in the hands of three other subadvisors. In Number of Transactions 66 54 58 67 61 2012, mutual funds accounted for 3% of Combined Value ($B) $25.2 $5.1 $5.8 $7.3 $9.0 the $18.2 billion in sales generated by Total Seller AUM ($B) $3,017 $357 $450 $762 $1,061 Average Deal Size ($M) $382 $95 $100 $109 $148 In a second transaction, Highmark Nationwide’s financial services division. Average Seller AUM ($B) $45.7 $6.6 $7.8 $11.4 $17.4 billion in assets to Reich & Tang Asset Source: Berkshire Capital Securities LLC Managementsold five money market funds with $4 provides liquidity and cash management , a New York firm that Natixis Global Asset basis points, down 30 basis points over the last 20 years, Management, reachedsolutions the to $32 financial billion services mark in firms.assets Reich according to the Investment Company Institute. For actively under supervision& lastTang, July part (after of the deal), representing managed funds, fees average 92 basis points, down 10 basis points from 1998, while index fund fees have dropped by nearly half to 13 basis points. Francisco’s22% growth Union during Bank the first (which seven is inmonths turn part of 2013. of Bank In As asset managers recalibrate their strategies for a ofa statement Tokyo-Mitsubishi on its website, UFJ), Highmark,said it made owned the divestitures by San because it had not “achieved the scale necessary to compete was centered in Europe’s restructuring industry, including changing U.S. market, the action last year for deal-makersOrix Highmark said the deals will allow it to focus on growing its Corp. of Robeco, the asset management arm of Rabobank “coreeffectively” business” in the of mutual serving fund institutional industry. and Separately, high net worth ofthe the €1.9 Netherlands. billion ($2.6 A billion)second megadealacquisition saw by privateJapan’s Warburg Pincus and General Atlantic pay In a move closely watched by the insurance sector and around €1 billion ($1.3 billion) for half of Santander’s investors, for whom it oversees $15 billion in assets. Allied World assetequity management firms business. New York Life Insurance Assurance Company Holdings initiated a strategic Dexia partnershipcredit investment with Crescent management Capital firms, Group , buying a Aberdeen minority stake in the privately held credit and high- Assetestablished Management a firm footprint in Europe by acquiring yield specialist. It marked the fourth investment Allied Scottishfor €380 Widowsmillion ($514 Investment million), Partnership while in the (seeU.K., Cross has made since the last quarter of 2012 under its new Border for more on all paid three £550 cross million border ($875 deals) million). BlackRock for , Allied World Financial Services created to facilitate strategic partnerships with leading added a tack-on ETF acquisition in Europe by acquiring subsidiary. AWFS was Creditthe leading Suisse beneficiary’s ETF business of the passive(see Cross investing Border) trend,. and reinsurance businesses and diversify its investment investment firms that complement the parent’s insurance the marketplace as buyers, including Affiliated Managers billion in assets split between marketable securities and Group,In the U.S., AllianceBernstein there were just a and handful Nationwide of major Mutualplayers in proprietaryportfolio. Los closed-end Angeles-based private Crescent investment manages partnerships $13 Insurance Co. Crestview Partners and Rosemont Investment Partners. They were joined by private equity firms and is best known for its high-performing mezzanine funds. 6 As part of the deal, Allied will commit $500 million in capital to new and smaller products managed by Crescent will provide it with more capabilities to meet the needs of minority stakes in credit strategist MatlinPatterson do want and will want more global products that we’ll be Assetacross Management a range of credit strategies. In 2012, AWFS acquired its institutional clients. “We figure many of those clients manager Aeolus Capital Management, among others. be renamed Amundi Smith Breeden. and collateralized reinsurance asset working on over time with Amundi,” he said. The firm will Royal In its second tack-on acquisition in three years, London Mutual Insurance Society acquired the Co- AllianceBernstein acquired W.P. Stewart, a publicly traded operativeIn a U.K. deal Banking involving Group another’s asset large management insurer, the business, and high net worth individuals. AllianceBernstein chairman it already managed. The deal included Co-Operative’s life U.S. equity specialist that manages $2 billion for institutions adding £20 billion ($33 billion) in assets to the £52 billion growth equity services” and “alpha generation potential” and CEO Peter Kraus said W.P. Stewart’s “concentrated enhancesinsurance itsbusiness. scale in Royal the domestic London, pensions the largest market mutual and life supportsand pensions its mutual company dividend in the policy.U.K., said the transaction complement his firm’s existing equity platform. On its website, W.P. Stewart says its funds have outperformed the Artio Global Investors, with the per share Scotland’s Aberdeen Asset Management paid $180 million In a move closely watched closingfor New price York’s prior to the offer. Artio, which traded on the New by the insurance sector and price of $2.75 representing a 34% premium over the target’s credit investment management York Stock Exchange, manages $10.6 billion in assets for retail and institutional investors, almost entirely in fixed income. firms, Allied World Assurance thatAberdeen will assist CEO withMartin growing Gilbert our said business the transaction organically.” dovetails In with the firm’s “strategy of undertaking infill acquisitions Company Holdings initiated addition, Gilbert said the deal will strengthen Aberdeen’s U.S. a strategic partnership with fixed income expertise and expand its distribution network Crescent Capital Group, buying Deutschein a “key growth Bank market.” Aberdeen has built a small U.S. presence via acquisitions, in particular its 2005 purchase of a minority stake in the privately ’s global fixed income business based partly in Philadelphia. Aberdeen, listed on the London Stock Exchange, held credit and has been criticized by some analysts for being overly reliant on emerging market strategies, which together with Asia-Pacific high-yield specialist. account for two-thirds of equity AUM. Equity assets in turn make up more than half of Aberdeen’s AUM. The purchase price is a big comedown from Artio’s $650 “broader market” during 27 of 28 10-year periods. The sincemillion then, initial primarily public offeringin its international in 2009 at $26equity per funds share. But U.S. Equity managed account, is (Aberdeenit also reflects transferred the significant those remainingoutflows Artio assets has to endured its own convictionfirm’s flagship ideas product, of our portfoliothe managers.” that drove Aberdeen’s interest have also experienced made up of 15 to 20 companies that represent the “highest global equity investment team). The fixed income funds AllianceBernstein, traditionally an equity shop, has been which involved splitting off from parent Julius Baer Group, outflows, but at much lower levels. At the time of the IPO, 2008 to recharge the company. In 2007, AllianceBernstein shifting its emphasis to bonds since Kraus came on board in that Artio’s dependence on international equity funds left had dropped by more than half before beginning a slow itArtio vulnerable had $56 to billion a turn in in AUM. investor One sentiment. analyst warned In addition then had $837 billion in AUM, 73% in equities. By 2011, assets acquired private equity fund of funds manager SVG wasclimb an in OTC-traded 2012 and reaching stock, having $440 beenbillion delisted last summer, from the Advisorsto Scottish (see Widows Hedge Investment Funds/Private Partnership, Equity). Aberdeen with 58% in fixed income. W.P. Stewart, founded in 1975, Another transatlantic deal of note saw French asset manager Amundi acquire Smith Breeden Associates New York Stock Exchange in early 2009 based on market sharecapitalization. price prior AllianceBernstein to the deal. AllianceBernstein offered $60 million could in cash (3% of AUM), or a premium of about 70% to W.P. Stewart’s ventureof North between Carolina, Societe an established Generale fixed and income Credit specialist Agricole , for institutions with $6.4 billion in AUM. Amundi, a joint AllianceBernsteinpay another $20 million expanded if W.P. its Stewart’s Asian footprint AUM increases with the acquisitionto $5 billion of within a small three Taiwan years fund of the manager. closing. In 2011, contributionsaid the deal providestoward Amundi’s “expertise goal in U.S.of creating dollar products” a global for its institutional and corporate clients and is a “significant in SouthernSun Asset Management The Affiliated Managers Group acquired a majority interest [Raleigh]fixed income News platform & Observer with that established the connection regional with expertise.” Amundi (AUM: $5 billion), Smith Breeden chairman and CEO Mike Giarla told INVESTMENT MANAGEMENT INDUSTRY REVIEW | 2014 a small- and mid-cap specialist based in Memphis. The 7 SouthernSun Small Cap Munder company’s flagship fund is Capital2004, already held investments in three other asset (AUM: $775 million), a concentrated vehicle with 20 to ismanagers, a middle-market including investor U.S.-focused with aequity value managerand “contrarian” 40 stocks. In referring to the firm’s “bottom up” approach orientation.. New Crestview York-based cited Crestview, Victory’s with “outstanding $4 billion portfolioin AUM, said,during “We an focusinterview on fundamentals. with Lipper last A lot May, of our SouthernSun work is managers” and “history of strong investment performance” donefounder, in plant CEO andand chieffacility investment with feet onofficer the groundMichael around Cook in explaining the decision to invest. In a second private equity deal, Rosemont Investment Litman Gregory Asset There were several deals of note Management andPartners generational took a minority transfer” stake of managers. in The transaction involving private equity buyers. designed to “facilitate a recapitalization independent, with the company scheduled to repurchase The largest saw Crestview ensures Litman (AUM: $9.4 billion) can remain

Partners pay $246 million highRosemont’s net worth shares individuals in five years. and runs Founded three in other California businesses, in to acquire Victory Capital including1987, Litman the Litmanmanages Gregory global portfolios Masters Fundsfor institutions, a family and of multi-manager equity and alternatives funds. Rosemont, Management from KeyCorp, the Cleveland-based bank. andan asset selected manager startups. investor In 2012, based Rosemont in Pennsylvania, supported provides the managementcapital for fund buyout management of $2 billion buyouts, in growth recapitalizations and value equity assets run by Fifth Third Bancorp

’s Minneapolis FTV Capital and Cleveland offices. companies only, they generally have facilities all around million investment in Good Harbor Financial, a provider the world. Even though we are [invested in] U.S.-based Three private equity firms led by made a $75 Friess Associates back to management. Friess is manager by LLR Partners and CJM Ventures, said the investment ofthe the world.” Brandywine AMG also family sold its of long-heldfunds as well majority as individual interest in willof ETF enhance managed Good portfolios Harbor’s (AUM: “product, $5 billion). client service FTV, joined and portfolios for retail and institutional investors. As part of distribution capabilities” and also provide capital for potential acquisitions. Good Harbor, founded in 2003 and Managers Funds based in Chicago, is one of the larger players in the fast- portfoliothe deal, thewhile three retaining Brandywine their branding, funds (AUM: with $1.2 Friess billion) will be reorganized under AMG’s share in institutional manager Essex Investment tacticalgrowing funds ETF managed employing portfolio ETFs in market, part or whole,which Morningstarincluding Managementacting as subadvisor. Co. in 2012,AMG, acquiredwhich also its divested initial interest a majority in Tacticalestimates Core at $75 billion in assets. The firm manages three its asset allocation based on prevailing or anticipated market conditions., a U.S. FTV long-only has been balanced an investor fund inthat several shifts Friess in 2001. Both Friess and Essex (AUM: $580 million) ETF providers, including ETF Securities, a commodities have experienced sharpClarfeld declines Financial in AUM Advisors in recent (see years. Separately, AMG made a minority investment in wealth Wealth Management). In a cross border deal, KKR & Co. acquired European management firm specialist with $23 billion in AUM. There were several deals of note involving private equity credit investment manager Avoca Capital in what was an otherwise relatively quiet year for deals in the million to acquire Victory Capital Management from consolidating credit sector. Founded in 2002 and based in KeyCorpbuyers. The, the largest Cleveland-based saw Crestview bank. Partners Victory pay Capital, $246 with $22 billion in assets under management and advisement, in loans and bonds, long/short credit, and structured and manages money for institutions and individuals across Dublin and London, Avoca has $8 billion in AUM, including a range of investment styles and serves as investment platform to offer a full spectrum of credit opportunities advisor to the Victory Funds portfolio of 19 mutual funds. globallyilliquid credit. for our KKR clients.” said Inthe building deal will its “expand European our credit credit Victory Capital Advisers, was also part of the deal. Crestview was joined in the purchase billion in capital for private credit and special situations. byKeyCorp’s Victory broker-dealer,Capital management and employees, who will business over the last two years, KKR has provided $2

Overall, the New York firm has $28 billion in credit assets in own a “significant amount of the outstanding equity.” asits banksglobal reinmulti-strategy in their lending platform. to manage Private risk equity and firms comply are “our core relationship banking model” and noted it would withhelping tighter to fill capital the post-financial requirements. crisis credit gap in Europe KeyCorp said the transaction was in line with a focus on cash proceeds toward its share buyback program. (In Estancia Capital Partners use between $75 million and $90 million of the after-tax Sustainable Growth Advisers , a private equity firm based March 2013, the bank announced a share repurchase in Arizona, acquired a minority interest in 8program of up to $426 million.) Crestview, founded in of Connecticut. SGA is a specialist in managing U.S. and global growth equity mandates for leverage loans all the way back to 1990.” Palmer parent Johninstitutions. Hancock The U.S. company, Global whoseLeaders AUM Growth has tripled Fund ,to with Montage Investments, the asset managementTortoise arm of $5.3 billion since 2011, is the longtime subadvisor for the Capitalacquisitive Advisors Mariner, a Holdings,manager ofincorporates energy master more limited than a dozen boutique firms, the largest of which is “institutional-quality”$626 million in assets. assetEstancia, and foundedwealth managers, in 2009, targets as well between 2011 and August of last year. investments between $10 million and $25 million in partnerships. Montage’s AUM doubled to $18 billion fund in December 2011 with commitments of $100 million as related business services firms. EstanciaNuveen closed Investments its first By virtue of its £550 million from investors such as Credit Suisse, interestsand several in Connecticutfamily offices, wealth with amanager goal of investing Spruce Private in six ($885 million) acquisition of Investorsto eight firms. and InBermuda addition hedge to SGA, fund the administrator firm has acquired Scottish Widows Investment Equinoxe Alternative Investment Services. Hedge fund Arrowpoint Partners entered the retail Partnership, Aberdeen Asset fund business with the purchase of Aster Investment Management became the Management and founded in 1977, Aster manages the small- and mid- largest publicly traded asset cap Meridian Growth(AUM: $2.9 Fund billion). (accounting Based infor California two-thirds manager in Europe, with £336 twoof assets), of Janus as wellCapital as two Group other’s top-performing funds. Prior to the small- deal, and billion ($540 billion) in AUM. Denver-based Arrowpoint (AUM: $2.2 billion) had hired Fund. Arrowpoint’s three principals are also former Janus executivesmid-cap managers, and portfolio who willmanagers, manage including the Meridian former Growth Janus Fund manager David Corkins, who started up Arrowpoint in 2007. Aster founder Richard Aster, Jr., died in 2012. with complementary specialties, Toron Investment ManagementIn a Canadian dealacquired between the largertwo independent AMI Partners firms. The Tamco Holdings completed a tender Toron AMI International Asset offer for the rest of the shares it did not already own in Management In the Midwest, Titanium Asset Management. Titanium combined firm, renamed is a multi-product asset management company that owns , will be based in Toronto and have C$3.5 Milwaukee-based agobillion and ($3.3 part-owned billion) inby AUM, Toronto-Dominion with AMI delivering Bank more prior the vehicle used by executives and senior employees of than 80% of the assets. AMI, founded more than 50 years Titaniumfour asset to managers effect the with acquisition, total AUM had of in$8.9 2012 billion. acquired Tamco, foundedto the deal, in 1988is an institutionalas a risk management firm focused consultant, on domestic has a of Boyd Watterson Asset Management, National globalequity, investment fixed income focus and and balanced serves investments. both institutions Toron, and Investment51% of Titanium Services for $18.5, Titanium million. Real Titanium Estate is Advisors the parent, and Wood Asset Management. The bulk of Titanium’s manager Cidel Financial Group, majority owner of Toron, private clients. Canadian financial services firm and wealth with equity and real estate strategies accounting for 11%. Titaniumassets are raised in fixed $120 income million and in managed a 2007 initial for institutions, public offering will remain the majority owner of the combined firm. By virtue of its £550 million ($885 million) acquisition toon acquire London’s specialist small-cap asset AIM managers exchange. with Created complementary as a special of Scottish Widows Investment Partnership, Aberdeen businessespurpose acquisition that it could company “manage (SPAC), as an Titanium’s integrated goal business.” was Asset Management became the largest publicly traded asset manager in Europe, with £336 billion ($540 one of the oldest asset managers in that city, is the largest of billion) in AUM. Aberdeen could also payLloyds up to Banking £100 Boyd Watterson, a fixed income shop based in Cleveland and Groupmillion in a performance-related earn-out over five cementedyears. As part a “long-term of the deal, strategic SWIP parent relationship.” For Palmer Square Capital the subsidiaries with $4.9 billion in AUM. retained a near-10% share and the two firms Management take a majority interest in Fountain Capital distribution channels and managing its insurance funds. ManagementA Kansas City-area, a high-yield deal saw bond and bank loan portfolio Aberdeen, that includes capitalizing on the insurer’s

Of the £136 billion in AUM Aberdeen acquired, nearly foundedinvestor within 1990, $1.1 concentrates billion in AUM. on Fountainthe higher-quality had already three-quarters involves Lloyds’ insurance business. served as subadvisor for Palmer products. Fountain, income (32%) than at Aberdeen (18%). Aberdeen, withThe assets equity are assets also focused more heavily on emerging weighted markets toward and fixed Kansas City Business Journal thatend ofFountain the high-yield is “really market. a natural Palmer extension Square of president our credit expertise.Christopher Fountain Long told has the been doing high-yield bonds and Asia-Pacific, also gains more exposure to the U.K. retail market through SWIP. INVESTMENT MANAGEMENT INDUSTRY REVIEW | 2014 9 In an interview with the Financial Times, Aberdeen chief with Pensions & Investments

, du Toit emphasized that the putsexecutive us in Martinthe big Gilbertleagues pointed in terms to of the assets imperatives under of withfirm isthe not same driven operating by volume, margins noting as managershis belief that with strong $1 management,size, “particularly and inthat the will U.S.,” help saying, us win “This business acquisition in the organizations can compensate for smaller size. “We run

trillion. So you can also create a lot of clatter and a lot theU.S. shadowas size, nameof the and government performance bailout are it what received matter in whichof complexity means ourand lives a lot areof inefficiency more pleasant.” when size is your 2008-2009,most.” Lloyds, sees which the tie-upis gradually as potentially emerging assisting from under only objective. We don’t live with those inefficiencies, divested several asset managers last year as part of its largerthe growth restructuring of its U.K. (see wealth Cross business. Border) The company WEALTH MANAGEMENT deal of note saw life insurer and asset manager Legal & General spend £131 million ($200 million). A second to acquire U.K. Cofunds Holdings it did not already own. the 75% of Tdisruptionhe formerly from staid governments and lucrative that Swiss only private a decade underCofunds administration is the U.K.’s largest and offering investment advisers platform a menu serving of banking business continues to endure official somefinancial 2,100 services funds. firms, overseeing £50 billion in assets and natural beauty and turn a blind eye to what was EFG International sold ago were content to focus on that nation’s efficiency its remaining 20% stake in structured products service providerIn Switzerland, EFG Financial private bank Products to Notenstein Private D.C.,happening they can in itsplace offshore the blame havens. for theirAs Swiss changing authorities fortunes and Bank bankers grapple with officials from Berlin to Washington, Leonteq. EFG The boomers are getting older and expect the costly International, for CHF 70which million has been($75 million).divesting Subsequently, non-core squarely on the financial crisis and baby boomers. operationsEFG Financial to focusProducts on wealth was renamed management, had sold a and economic crisis cost governments a fortune to resolve, third of the shares in EFG Financial in 2012 through an goodies they were promised in retirement; the financial everywhere are generally testy about wealthy people not payingincluding their unprecedented “fair share.” As deficit this tugspending; of war overand votersmoney issuinginitial public structured offering. products Notenstein under (AUM: the Notenstein CHF 21 billion) name played out last year between national governments and forsaid the it will domestic become market Leonteq’s that arewhite-labeling in turn guaranteed partner, Raiffeisen Group (Raiffeisen acquired Notenstein in 2012). For its part, the Swiss, the Alpine nation loosened its grip on the rope, by its Aa2-rated Swiss parent, agreeing in August to a U.S. Justice Department program to to issuance and distribution, including through EFG “encourage” Swiss banks to provide account information Banks that go along with the non-prosecution agreement International.Leonteq will “provide Raiffeisen substantial is the third-largest services” relatedbanking about U.S. citizens. will still face a penalty equal to 20% of the maximum soon after he was hired to be sales head for Notenstein’s structuredgroup in Switzerland. products group, In an Claudiointerview Topatigh with Bloomberg said that aggregate value of all non-disclosed U.S. accounts held was declining as a percentage of investor portfolios, “it before August 2008 and between 30% and 50% for while the $185 billion Swiss structured notes market areaccounts not eligible opened for after the program.)that date. (The In a separatedozen or action so Swiss in domestic investors.” banks currently under criminal investigation by the U.S. can still be profitable for issuers that have strong links to Investec Asset Management, part of inSeptember, the future, the in Swisscompliance Parliament with Washington’sapproved a law Foreign allowing Investec, paid £180 Accountthe nation’s Tax banks Compliance to cooperate Act. with U.S. tax authorities Management at South African financial services firm membermillion ($270 and CEO million) Hendrik for a du 15% Toit, share has anin theiroption firm. to The management group, which included IAM founding European Union nations have been pushing for their will pay for its stake equally through a combination of own deal with the Swiss, who faced added pressure on debtadd another and equity 5% (comprisingover the next cash, seven deferred years. The bonuses, group the Continent after Luxembourg and Austria caved in long-term incentive awards, and personal loans). Both center,last spring didn’t and pledge dropped complete their opposition transparency, to EU-wide however, astransparency it restricted rules. the information Luxembourg, to ainterest major offshorepayments banking for institutional clients are attracted to asset management individuals. Investors in other products, as well as legal and the parent and IAM said they “strongly believe that corporate entities, were left alone. independence and alignment of incentive structures to The path to these various deals was laid in 2009, when companies that have significant operational UBS agreed to pay $780 million to settle civil and billion) in assets, the majority for institutional investors, criminal charges alleging it helped Americans evade long-term performance.” IAM manages £70 billion ($105 taxes, and to turn over the names of some of the clients. with AUM having doubled since 2007; it also accounts 10for a third of the parent’s profits. In a 2012 interview The nation’s oldest private bank, Wegelin & Co., shut ABN Amro and alternatives asset manager Nexar Capital Group. quitdown private last year banking following due toa guilty mergers plea or to liquidations, similar U.S. the Swiss private bank of Credit Suisse acquired Morgan Stanley’s European, charges. Since 2012, 22 of the nation’s 300 banks have controversyaccording to inthe an Swiss op-ed Financial piece last Market June in Supervisory the Financial pickingMiddle Eastup assets and Africa from a(EMEA) major Americanwealth business, seller. In in 2012, the TimesAuthority. Commenting on the Swiss banking BlackRock Juliussecond Baer deal boughtin as many Merrill years Lynch involving’s international a Swiss private wealth bank and former chairman of the governing board of the , Philipp Hilderbrand, vice chairman of movies he used to enjoy as a boy. “It was clear that, with business. That same year, Morgan Stanley sold its U.K. Swiss National Bank, made an analogy to the John Wayne wealth managementmanager, Quilter. business. For Credit But the Suisse, assets the are acquisition primarily its banks were slow to recognise this simple truth. The adds a relatively spartan $13 billion in AUM to its large priceenough to firepower,pay is now might uncomfortably would prevail. high.” Switzerland and manager in that market, while enhancing scale in other “keylocated growth in the markets” U.K. and suchwill makeas Italy, the Eastern firm a top-10Europe wealth and deals in the wealth sector, as the industry continued to Russia. Although price was not reported, observers placed remakeIn 2013, itself Swiss in firms line with were new at the realities, center includingof two significant expansion Union Bancaire Privee made an opportunistic purchase of Lloyds Banking it in the area of $150 million. into other markets. Within Switzerland, Group Between 2009 and the first half of 2013, Credit Suisse’s 39% owned by the British government at the time of the Asia and EMEA businesses accounted for 60% of net ’s loss-making Swiss-based wealth business. Lloyds, new wealth management assets ofJ O CHF Hambro 143 billion Investment Management($150 billion), businesswhile Switzerland to Bermuda represented National just Limited 14%., as deal last May, has as part of its bailout been disposingSabadell of wellSeparately, as its two Credit private Suisse equity sold businessesits (see Cross Border (seeassets Cross and Border) paring ,its as non-U.K.well as Scottish operations. Widows Last year, Investment the firm and Hedge Funds/Private Equity) Partnershipalso sold its Miami to Aberdeen private bankAsset to Management Spanish bank (see Money buyer for its German private client business. ; it was also seeking a business in India to Standard Chartered The U.K., which has seen a spate of wealth (seeMorgan Cross Stanley Border) sold. its wealth management

deals in recent years in response to cost deals in recent years in response to cost and regulatory pressures, played host to the andThe regulatoryU.K., which pressures, has seen a played spate of host wealth largest such transaction in 2013: Schroders’ Schroders purchaseto the largest of Cazenove such transaction Capital .in The 2013: deal £424 million ($645 million) purchase of merges two’ £424venerable million names ($645 in million)British

Cazenove Capital. been established in the early 19th century. asset management, with both firms having

Cazenove adds £12.1 billion ($18.4 billion) Management) in wealth assets to the £16.3 billion Schroders already managed, plus another . However, Lloyds has returned to profitably, of£5.1 2012 billion and in the funds. time Cazenove,of the deal which announcement retains its in name, the and the government earned a $95 million profit off the generated 20% growth in AUM between the first half September sale of 6% of the bank’s shares. 10 billion ($10.2 billion) to the CHF 83 billion in assets it independentfirst quarter ofprivate 2013. banking Michael andDobson, wealth chief management executive Through the Lloyds acquisition, UBP added nearly CHF of Schroders, said the transaction “creates a leading, execution of [its] strategy to grow its global presence and talent in complementary strategies” in the larger asset already managed. UBP called the deal “a key step in the business in the U.K., and brings additional investment expand its private banking activities.” The Lloyds business management business. Schroders expects to wring up to enhances UBP’s footprint in Switzerland, the Middle £15 million in annual cost savings through synergies. East and Latin America, and adds offices in Gibraltar and Monaco. The company could pay as much as £100 million Largely known for its funds business, Schroders had continues($150 million) a comeback for the business,from the reputationalwith a third of hit the it tookprice £212 billion ($325 billion) in total AUM prior to buying inbased 2008, on when performance the bank over revealed two years. that its For customers UBP, the dealhad aemployee-owned deal in 2010 before Cazenove, returning with in nearly late 2012 60% for from more institutions. The firm initially approached Cazenove about with a large fund of hedge funds business, subsequently had surplus capital of £1.1 billion. With that healthy balance exposure to Bernard Madoff’s investment vehicles. UBP, serious bargaining. Prior to buying Cazenove, Schroders has made two other European acquisitions since 2011, for saw its assets drop by nearly half to CHF 75 billion. UBP sheet, Schroders had begun doing some shopping in 2012, INVESTMENT MANAGEMENT INDUSTRY REVIEW | 2014 extending its presence in the U.S. with the acquisition 11 of STW Fixed Income Management interest in Axis Asset Management of India. and buying a 25% amongalternative its customers investor. GFWM and has is $20a turnkey billion asset in assets. management Aquiline Standard Life Investments, one of Europe’s largest asset andplatform Genstar that said counts they 6,000 will “enhance independent product financial development advisors Standard distribution channels and launch new alternative products” Lifemanagers, acquired (AUM: the £179 private billion/$285 client division billion) of BNY and Mellona subsidiary- and technology offerings” at GFWM and “expand ownedof Edinburgh-based Newton Management savings and investment firm British rivals Quilter Cheviot Investment Management at Altegris. They also plan to rebrand the firm. and Rathbone Brothers. Dependingof London, on the beating value outof assets Financial, company president and CEO Gurinder Ahluwalia In a reference to GFWM’s secondary position at Genworth want to be somewhere that you are core told RIABiz, “For me, the tangible is you Wealth Management Transactions something that the parent gets excited to everything they do. You want to be American 2009 2010 2011 2012 2013 Insuranceabout.” New Group York-based’s “Hank” Aquiline, Greenberg), started has in 2005 by Jeff Greenberg (son of Number of Transactions 47 39 56 60 57 Combined Value ($B) $5.2 $9.9 $1.1 $3.6 $3.3 Conningbeen an active buyer of financial services Total Seller AUM ($B) $246 $518 $80 $240 $371 thefirms, insurance including industry, asset managers and HedgServ such as, a Average Deal Size ($M) $111 $254 $19 $60 $58 , an institutional firm serving Average Seller AUM ($B) $5.2 $13.3 $1.4 $4.0 $6.5 ofglobal committed alternatives capital fund under administrator. management, San Source: Berkshire Capital Securities LLC Francisco-based Genstar, with $4 billion among other sectors. Richmond, Va.-based Genworthalso invests Financial, in financial which services suffered firms, losses in its mortgage guaranty business from 2007 through early 2012, has been restructuring its operations around its core transferred and retained, Standard Life could pay up to insurance business. assets£83.5 millionin the Standard ($125 million) Life Wealth for the division, which had Affiliated Managers Group cut its second deal through £3.6 billion in AUM and more than triples discretionary the AMG Wealth Partners unit, taking a minority stake a high-quality book of business, as well(SLW) as a unit. skilled Standard and in Clarfeld Financial Advisors dedicatedLife said the client-facing deal “represents workforce, a rare without opportunity any legacy to acquire operations or systems.” Newton’s long-only investment of New York. Clarfeld, founded in 1981 and with an additional office in London, adjusting asset allocation. has $4 billion in assets and expertise in assisting expatriate focus also complements SLW’s specialty in managing risk by “enhancedAmerican executives opportunities and fortheir growth, families. especially President in andour non-CEO Handelsbanken extended its established presence in the domesticRob Clarfeld business, said the given AMG the connection scale and will resources provide of for a global In a small cross border wealth deal, Sweden’sHeartwood Barron’s has named Rob Clarfeld the No. operationsU.K. through throughout the acquisition Europe, of 25-year-old said the deal ensures the financial partner.” bank(AUM: will £1.5 be billion/$2.4 able to “cater billion). [to] our Handelsbanken, customers’ wealth with 1 independent advisor in New York and the Northeast for management needs” and thereby “strengthen our customer acquiredfive consecutive a majority years. interest AMG Wealthin small- Partners and mid-cap was formed specialist SouthernSunin 2011 to invest Asset in boutique Management wealth (see managers. Money Management)AMG also . Handelsbanken’s fastest-growing market. satisfaction and relationships even further.” The U.K. is based in Florida, announced its national ambitions in the buyers and consolidators that made multiple acquisitions, formBanyan of threePartners, geographically a large, independent diverse acquisitions wealth manager last year. In the U.S., activity was notable for theUnited number Capital of financial Financial Partners and Focus Financial Partners, as well as newer Silver Bridge Advisors playersincluding like prominent Banyan Partners firms such and as Argent Financial Group. The first and largest for 5-year-old Banyan involved the wealth unit of law firm WilmerHale. border deals involving two Canadian buyers, Canadian inBoston-based assets. The otherSilver two Bridge deals, added adding $1.9 a billiontotal of in $1 assets billion in ImperialThere were Bank also ofthree Commerce significant and North Fiera American Capital Corp cross. assets,under management were for Rushmore and advisement Investment to Banyan’s Advisors $1.5 of Dallas billion and Holt-Smith Advisors of Wisconsin. The transactions Aquiline followed a capital infusion in Banyan from a Toronto Capital Partners and Genstar Capital, team up to Temperance acquireThe largest the U.S.wealth deal management saw two private arm equityof insurer firms, Genworth Partners Financial, which had been on the sale block since at least hadinvestor previously and financial founded services and run specialist, Boston wealth manager Genworth Financial Colony Group. Banyan was started by Peter Raimondi, who Wealth Management included the Altegris unit, an 2012. The $413 million deal for 12 , which he sold in 2006. The three deals, on also cut several deals in different geographies, the top of several in 2011, give the firm nine offices nationwide. Wealth aggregator United Capital Financial PartnersParagon Banyan’s targets: small, establishedFinancial firms Advisor with partners, “We’ll in Investment Management. “The Northwest region was a gettheir as 40s big oras 50s.[we] Although need to get Raimondi to continue defers to offeron how all largethe most significant one involving Seattle-based solutionshe’d like his necessary firm to get, to prospects.” he told and founding partner Joe Duran told Investment News ingaping explaining hole in the our deal. national An established footprint,” wealthUnited manager,Capital CEO acquisitions,Another independent the largest firm, of which Argent was Financial for Highland Group ofCapital Paragon has more than $1 billion in assets, with an average ManagementLouisiana, expanded its Southern footprint with three client having $4 million in assets. Duran said his firm may use the Paragon name to differentiate the high netPPA worth to help manage of his Memphis. fortune followingNearly 40 theyears merger ago, noted of his part of United Capital’s business from the mass affluent. Memphis businessman Abe Plough formed Highland Advisors The other two deals United Capital didc5 were Wealth for Management of Atlanta (AUM: $220 million) and a Washington inception,pharmaceutical bought firm out with Highland Schering. from In parent 2011, FirstHighland Horizon morearea firm than with $17 $300billion million in assets. in assets, Nationalpresident. SteveWishnia Wishnia, told the who Commercial ran the firm Appeal from its . In total, United Capital and its affiliates have that “combining with another entity now was a good thing Broker-dealer giant LPL Financial acquired a Florida for my employees and would give us more resources of Memphis for our wealth manager, Ingham Retirement Group, which Trust Company, which said its board had “reviewed numerous business owners. Ingham, founded in 1972 and with $1 optionsclients.” asIn weaddition, planned Argent for the acquired [company’s] San Antonio’s future.” The specializes in retirement planning for high net worth East Broad Trust. The billion in AUM, bills itself as one of the Southeast’s largest third deal involved South Carolina’s retirement planningcapabilities” consulting firms. in explaining The company its decision cited three transactions doubled Argent’s assets to $6 billion. LPL’s “extensive technological,to sell. Citigroup research sold and its supportDelaware- Canadian financial firms continued to head in assets under administration, to the Delaware-basedbased trust company, trust withsubsidiary $1.5 billion of south of the border, capitalizing on their Atlanta’s Reliance Financial Corp. Citi described the unit as a non-core financial strength and a currency on par with part of its larger trust business, while

the greenback. In the marquee deal, Canadian Delaware trust business. Reliance said it doubles the size of its Imperial Bank of Commerce paid $210 million for Evestnet, an open-architecture

Atlantic Trust Private Wealth Management. the Wealth Management Solutions businessturnkey technology of Prudential firm, Financial acquired,

administration. Evestnet could pay up to $33 million, largelywith $24 in contingency billion in assets payments under over three years. The company said the deal strengthens its Focus Financial Partners made several investmentsTelemus leadership in managed accounts and in the bank and trust Capitallast year Partners that added to its sizable portfolio of wealth channel, while extending its presence in Canada. billionaffiliates. in assets.One of Forthe largerTelemus, deals the involved link to Focus provides , a suburban Detroit firm with $2 support in such areas as technology and marketing. currencyCanadian onfinancial par with firms the continuedgreenback. to In head the marqueesouth of thedeal, capital for its own potential acquisitions and back-office Canadianborder, capitalizing Imperial Bank on their of Commerce financial strength paid $210 and million a Buckingham Asset Management, was for Dallas- for Atlantic Trust Private Wealth Management. One basedA second JWA deal, Financial done through Group St. Louis-based affiliate Centerbridge Capital Partners II . Last year, Focus received of the larger independent wealthInvesco managers in the U.S., a $216 million investment from involveAtlantic clients has 12 with offices $100 nationwide million or and more nearly in assets $20 billion and that made the New York-based private Rudy Adolph said the capital will be used primarily to in AUM. The company, part of , says 25% of assets helpequity shareholders firm the largest cash minority out a part shareholder. of their investments Focus CEO (Adolph said he will also sell some of his shares). Other more than half is managed for clients with between $5 Summit Partners million and $75 million in assets. The firm also claimed and Polaris Ventures C$3224 consecutive million ($31 quarters million) of inpositive revenues net ininflows, the 2013 as of third significant Focus investors include quarter,March 2013. a 28% CIBC’s increase private over banking the same business period generatedin 2012. The . Focus, founded by Adolph in 2006 bank’s overall wealth management business, including and based in New York, has more than $60 billion in assets through its various affiliates. INVESTMENT MANAGEMENT INDUSTRY REVIEW | 2014 13 its asset management and brokerage units, generated this opportunity? This opportunity puts us at $28 billion, net income of more than C$100 million during the same quarter, or 11% of CIBC’s total net income. The second deal saw Canadian Western Bank acquire and so that scale really drives some fantastic financials.” CIBC said the acquisition provides it with “an attractive McLean & Partners Wealth Management C$1 billion), as part of the Edmonton-based bank’s effort to 55% of (AUM: entry into the U.S. private wealth market.” The deal also inmarks mutual another fund stepprovider in CIBC’s American U.S. ambitions: Century. In(In 2011, a 2012 the theexpand bank’s non-interest second-quarter revenue conference and earnings. call, president Management and at CanadianToronto-based deal, CIBCbank acquiredmade an $848the small million private investment wealth McLean & Partners retained the rest of the equity. During business of MFS McLean Budden enhance the competitiveness of CWB’s wealth management Atlantic Trust agreement was reached, a scandal erupted practice,CEO Chris in Fowler particular noted for that the thebank’s addition clientele of McLean of business will at the wealth manager following the.) Soon suicide after of theone of owners. Fowler added that the bank would be likely to “continue to look for opportunities.” CWB also holds a majority stake in Adroit Investment Management, an the transitionfirm’s advisors, was “on who track” was allegedlyand the deal running is expected a Ponzi to scheme. Still, in its third-quarter press release, CIBC said Edmonton wealth manager with around C$1 billion in AUM. close in early fiscal 2014. McLean, based in Calgary, called the deal a “tremendous opportunity” to join forces with “a financially strong and Fiera Capital Corp. of Montreal madeBel its Air first Investment U.S. There were a couple of notable cross border deals for growing Western Canadian financial institution.” Advisorsacquisitions in purchasing two established U.S. wealth Wilkinsonmanagers, paying O’Grady $125 & Co. million for Sumitomo Mitsui Banking Corp.’s acquisition of of Los Angeles and $31 million for New York’s Societewealth managers Generale that Private involved Banking purely Japan domestic and Religare operations: Combined, the two firms have Enterprises more than $8 billion in AUM, primarily through Bel Air, wealth management joint venture (see Cross Border). total.and increased On the revenue Fiera’s side,AUM the to C$74 deals billion boost private($70 billion) wealth to ’ purchase of Macquarie’s stake in their Indian and its wealth management AUM from 3% to 14% of the

36% of the total from 9% while lessening dependence on Jean-Guy Desjardins, chairman and CEO of Fiera, touted the CROSS BORDER institutions (37% vs. 52% prior to the deals). investment management market” and said the acquisitions “tremendous growth potential in the U.S. private wealth and ive years after the start of the crisis that shook the

“fit perfectly with our plan to create value by becoming a Findustry continues a metamorphosis designed Air,leading told NorthInvestment American News investment, “We want tofirm grow within more. the We next now to ensureworld’s the banks financial are system,leaner, more the European focused and banking havefive years.” the capital Todd to Morgan, accomplish senior that.” managing Bel Air’s director clients of tend Bel a systematic shock than they were in 2008. As part of better capitalized — in short, better able to withstand ato transformational have $20 million oneor more for the in assetassets. management Since 2012, Fierabusiness has been divesting assets ranging from loan books to entire ofmade National seven Bankacquisitions of Canada in Canada and the U.S., including businessthat process, units. banks and other financial institutions have more than doubled since 2011, with Desjardins having set . The company’s AUM has have been among the most notable institutions year, Fiera also acquired hedge funds managed by GMP restructuring.The numerous But firms even that solid required banks government such as Rabobank bailouts Investmenta goal of C$150 Management billion in AUM (see over Hedge the Funds) next five. years. Last have been making changes. The Dutch farmers’ co- There were two Canadian transactions involving operative, whose loan portfolio largely involves food and domestic operations, the larger of which featured a cross border seller, Macquarie Group. In that deal, Toronto- good shape. Its Tier 1 ratio was a sturdy 12.7% in 2008 based Richardson GMP strengthened its position as andagriculture climbed businesses, another 1.1 came points out in of 2009, the financial and the bankcrisis in Canada’s largest independent wealth manager with retail business, in the process nearly doubling assets aretained December its Triple-A2012 interview rating until with 2011, the Financial when Standard Times, underthe C$132 administration million purchase to C$28 of billion.Macquarie’s Richardson, Canadian which & Poor’s dropped it two notches to Double-A. Still, in will help pay for the acquisition of Macquarie Wealth bank’s rapid growth in assets since the late 1990s would Management with a share issue, has seen its assets grow slowRabobank down chairman as it began Piet “de-risking Moreland and indicated deleveraging” that the and making “selective choices.”

Newsfrom C$11 Network billion to C$15 billion in recent years. Andrew its Robeco asset management unit for €1.9 billion Marsh, president and CEO of Richardson, told Business Last year, one of Rabobank’s choices involved selling fantastic place tothat be. the The firm’s question business then modelbecame, indicated do we contribution to the ongoing revamp of the Continent’s asset recruitthat C$25 one billion by one in to assets get there “was or going do we to takebe a prettyadvantage of ($2.6 billion). In the process, the bank made its second

14 management industry. In 2011, Rabobank sold its Swiss private bank, Bank Sarasin & Cie, for $1.1 billion to Safra potential in that region. Robeco has enjoyed strong growth Group. At the time, Rabobank was seeking capital to secure

since the financial crisis, with AUM jumping 70% between partthe triple-A to strengthen credit ratingits Tier it 1eventually ratio to meet lost thefrom new Standard and 2008 and 2012, including net inflows of €18.4 billion ($25 more& Poor’s. rigorous With lastBasel year’s III regulations, sale, Rabobank with wasthe transaction aiming in andbillion) management, in 2012; net and earnings Orix and were Rabobank €197 million said they ($260 “plan boosting the number by 70 basis points. As a bank-owned tomillion) jointly that maintain same year.and develop The firm Robeco’s will retain business its branding platform asset manager, Robeco would also have been subject to in Europe.” A second Japanese-European deal that involved purely compensation and distribution charges, among other rules. domestic operations saw Sumitomo Mitsui Banking Corp. significant regulatory changes in the Netherlands affecting That the buyer was Tokyo’s Orix Corp. is also instructive acquire Societe Generale Private Banking Japan The Japanese subsidiary of French bank Societe Generale Faced with an aging and declining population, marginal (SGPB). for what it says about Japan’s evolving financial industry. had offices in Tokyo and Osaka and ¥408 billion ($4 billion) willin AUM, focus or on less private than 4%banking of SocGen’s in “markets global Cross Border Transactions whereprivate it banking is best positioned assets. SocGen to further said it expand, given its strengths and competitive

U.S. - INTERNATIONAL 2009 2010 2011 2012 2013 Number of Deals 8 17 21 22 27 advantages.” Sumitomo said it will deliver new services and products to SGPB clients Value ($B) $1.4 $3.9 $2.8 $3.0 $3.9 as it seeks to improve that business. Last year, as part of a push into Southeast INTERNATIONAL - INTERNATIONAL 2009 2010 2011 2012 2013 PTAsia, Bank Sumitomo Tabungan also paidPensiunan $1.5 billion Nasional for . Number of Deals 13 20 27 26 22 a significant minority stake in Indonesia’s Value ($B) $3.2 $2.0 $2.4 $1.7 $3.9 fromBetween 10% the to 201118% ofand the 2013 total. fiscal In addition years, Sumitomo’s non-Japanese revenues rose TOTAL 2009 2010 2011 2012 2013 was reportedly mulling the sale of the Number of Deals 21 37 48 48 49 restto divesting of its Asian the privateJapanese banking business, business, SocGen Value ($B) $4.6 $5.9 $5.3 $4.7 $7.8 Osaka’s Nippon Life Insurance headed based in Singapore. Source: Berkshire Capital Securities LLC Post Advisory Group from parent Principal Financialto the U.S. to take a minority stake in economic growth, and perennially low interest rates, a multi-strategy, value orientation.. One of NipponPrincipal’s pointed boutiques, to has been making overseas acquisitions and diversifying Post (AUM: $11.8 billion) is a high-yield specialist with Japan’s financial firms are spreading their wings. Orix Nissay lucrative fee-related businesses. Orix’s acquisition of Assetthe growth Management in the high-yield unit. The market Japanese in both insurer the U.S.said and the 90%away offrom Robeco low-profit was the loans largest and asset leasing management and into more deal transactionJapan, saying will it will also offer foster Post the products expansion through of an asset its of 2013 and one of three noteworthy cross border asset retained 10% of the equity in Robeco, which has €190 managedmanagement for institutions. partnership Inwith 2012, Principal. the company NAM has paid ¥6 $290 management deals made by Japanese firms. Rabobank milliontrillion ($65for a billion)minority in stake AUM, in more one ofthan India’s 80% largest of which asset is managers, Reliance Capital Asset Management, and billion ($255 billion) in AUM split about evenly between last year sought to expand its Indian presence by reaching retail investors and institutions. Pricing on the deal was Robeco extends Orix’s asset management footprint into agreement with holding company Reliance Group to invest 11.2 times EBITDA and 1.14% of AUM. in a new bank. Nippon also has a minority investment in is the parent of Harbor Capital RobecoEurope and Investment enhances Management its presence in the U.S., where Robeco its international footprint last year by taking a majority owns hedge fund manager Mariner (AUM: Investment $70 billion) Group and , stakeReliance’s in British insurance fund ofarm. hedge Meanwhile, funds manager Principal Liongate extended acquired in 2010, as well as commercial. In the mortgage U.S., Orix lender already Capital Management (see Hedge Funds/Private Equity). Red Capital There were several other deals of note in Asia, with India Concordia Advisors see Hedge Funds/Private Equity.) The Robeco portfolio. (Mariner also includes announced the Netherland’sits own acquisition, largest of ; assetand South management Korea taking industry, the spotlight however, from by expanding the usual theactivity Transtrend in China and Hong Kong. China continued to reform its Orix’shedge Asianfund and network one of provides the largest Robeco managed with futuresexpansion firms, (AUM: €6 billion/$8 billion). Meanwhile, INVESTMENT MANAGEMENT INDUSTRY REVIEW | 2014 role of foreign financial services firms and insurers in 15 together the broader Religare ecosystem... under a common general. Shanghai regulators opened the door to foreign tohedge invest funds outside via a the trial nation. program The in participants which six U.S. include and British such unified umbrella.” The wealth management unitLandmark has $420 powerhousesfirms will raise as $50 Citadel million, Man each Group from andChinese Winton institutions Capital . Partnersmillion in andAUM Northgate and nearly Capital 5,000 clients. Religare holds In a victory for foreign banks, Citigroup, HSBC Canadianstakes in two wealth U.S. business alternative (see asset Wealth managers, Management) . other non-Chinese banks were given the green light from . Macquarie also sold its Morgan Stanley China’s securities regulator to sell domestic mutual and fundsfive sold its Indian wealth business to emerging markets specialistAfter a nearly Standard 4-year Chartered run in the .market, With the acquisition, fundsto Chinese that investcustomers. outside Previously, China. foreign banks had been already managed, enhancing its position as one of the limited to selling Qualified Domestic Institutional Investor StanChart adds $800largest million wealth in managers AUM to the in $3the billion country. it A local business publication placed Cross Border Transactions by Domicile and Type managementthe transaction business price at in $15 India, million. along BUYER: U.S. INT’L INT’L Morgan Stanley retains a separate asset 2013 SELLER: INT’L U.S. INT’L TOTAL Wealth Management 1 4 9 14 managementwith an investment group bank.accounted In the for first 7% six months of 2013, StanChart’s wealth Money Management 9 5 7 21 8% increase compared with the same Other 6 2 6 14 periodof operating in 2012. income, or $686 million, an Total 16 11 22 49 business in India, it expanded its asset BUYER: U.S. INT’L INT’L While Macquarie was exiting the wealth 2012 SELLER: INT’L U.S. INT’L TOTAL the purchase of ING’s local unit. With the Wealth Management 1 2 7 10 additionmanagement of ING business Investment in South Management Korea via Money Management 5 6 12 23 Korea became the largest foreign asset manager in Other 5 3 7 15 the country. (AUM: The $23 company billion), saidMacquarie it will make Total 11 11 26 48 its “global investment capabilities” available

Source: Berkshire Capital Securities LLC to ING IMK’s clients, primarily comprising institutions. While the Korean retail market Regulators also granted permission to insurance has proved difficult for foreign players — in part because domestic firms dominate distribution — the given the distribution power of insurers. One deal of overseasinstitutional for investmentmarket has opportunities,$1.5 trillion in assetsincluding and the is growing giant companies to offer mutual funds — a significant change Nationalrapidly. Moreover, Pension institutions Service are increasingly looking Gottex Fund ING has been divesting its global asset management and Managementnote building off Holdings the liberalization establish aof joint China’s venture markets with insurance businesses as part. Dutch of a bailout financial agreement. services firm ING also saw Swiss fund of hedge fundsVStone manager Asset Management. The venture is designed to provide non-Chinese MBK Partners for $1.7 billion, as well as its Shanghai investment firm sold its South Korean life insurance business to local private China’s onshore equity and bond markets, as well as oneequity major firm asset management business left in Asia, in Taiwan. institutions and qualified individuals with access to Hong Kong, Macau and Thai insurance businesses. ING has Gottex products in China. In 2012, Gottex acquired Hong New York Life Insurance formed a strategic alliance domestic mutual funds; it will also serve to distribute with Samsung Life the introduction of a new retail fund seeded by both Kong fund of hedge funds firm Penjing Asset Management partners, the Samsung-U.S. in South DynamicKorea that Asset will include Allocation manager,as part of Frontieran Asian expansion.Investment Last Management year, Gottex. also Fund bought a majority share in a small U.K. multi-asset asset management opportunities in the broader Asian . New York Life said the firms will also explore “joint have been facing headwinds in recent years, a couple of In India, where financialMacquarie markets and Group the economyof Australia ownsmarketplace.” the nation’s Samsung leading Life asset is part manager, of shipbuilding-to- Samsung Asset sold its stake in the Indian wealth management joint Managementelectronics conglomerate Samsung Group, which also venturefirms were it formed retreating. in 2007 with New Delhi-based have similar asset management businesses, with a Religare Enterprises, as part of a larger exit from wealth (SAM). Both New York Life and Samsung

significant percentage of their respective assets managed management in Asia. Religare, a financial services firm for the parent company. New York Life has managed fixed controlled by the billionaire Singh brothers (Malvinder and income investments for SAM for more than a decade. New 16Shivinder), said the deal will help drive growth by “bringing completed a $171 million deal announced in late 2012 to XP Investimentos, an York Life, which made a series of U.S. acquisitions in 2012, independent broker-dealer and investment advisor with said it expects the affiliation “to enhance the ability of our take a minority share of Brazil’s boutiques to attract other Korean institutional clients.” 390 offices throughout that country. cashNew purchaseYork Life alsoof the factored asset management in one of two arm major of Dexia , BlackRock’s acquisition of Credit Suisse’s European atransatlantic transformational deals withdeal forthe the€380 mutual million life ($514 insurer million) that exchangeAnother high-profile traded fund transatlantic business — thedeal second involved tack-on ETF extends its footprint into Europe, as well as Australia deal the company has done since 2012. The world’s largest through Ausbil Dexia asset manager, BlackRock is also the leading player in the

. For New York Life, the €74 billion its iShares ($100 billion) in AUM it gains from Dexia boosts third- playerETF market, in Europe’s with more ETF market than $800 with billion $18 billion in AUM in through assets chairmanparty assets and to CEO $273 of billion New York and totalLife InvestmentsAUM to $490 , billion,said brand. The Credit Suisse business — a top-five making the firm one of the larger global players. John Kim, in Europe and bolsters its position and 58 products — adds to BlackRock’s leading position about half of the acquired assets New York Life also factored in one of two major arein Switzerland’s domiciled. Following ETF market, the closewhere transatlantic deals with the €380 million ($514 name.of the deal,In 2012, the CreditBlackRock Suisse acquired ETFs million) cash purchase of the asset management Canadianwere rebranded ETF provider under theClaymore iShares arm of Dexia, a transformational deal for the Canada, in the process adding to its dominant share in that market. As of mutual life insurer that extends its footprint into had $170 billion in ETF assets in Europe, as well as Australia through Ausbil Dexia. the first quarter of 2013, BlackRock region. BlackRock also acquired theits Europe, real estate Middle advisory East andunit Africa of Macquarie Bank (see Real Estate). J O Hambro to the company’s highly rated funds, strong European Investment Management unit to Bermuda National platformthe Franco-Belgian and established firm provides Australian his equities clients with business.” “access Additionally,Limited Credit Suisse sold its The aggressive overseas expansion stands in sharp contrast the equity, with management and employees holding the . BNL paid £50 million ($75 million) for 63% of Dexia Asset for private clients and institutions and provides a suite Managementto New York Life’s insurance business, which operates rest. Based in London, J O Hambro manages portfolios hisin just new one parent’s market multi-boutique outside the U.S., structure Mexico. in saying that “the integrity of (DAM) our investment CEO Naim processesAbou-Jaoude and praised culture is of in-house managed funds. J O Hambro has £4.8 billion preserved and we will maintain our existing platforms and ($7.2 billion) in AUM and another £1.2 billion in assets commercial presence.” For Dexia, the sale is another in a expandunder control. its client Stephen base to Browne, include directorAmericans at Jand O Hambro, Asians. long line of divestitures driven by the terms of its bailout “Theretold London’s are different Citywire ways that of the capturing company those was clients seeking in to GCS Capital international experience, so we hope to tap into what they agreement. In 2012, Hong Kong investor London or offshore jurisdictions, andBermuda BNL has Commercial a lot of agreed to pay around the same price as New York Life paid Bank, one of Bermuda’s four licensed banks, and also for DAM, but the deal collapsed over the summer of 2013. can offer us.” BNL is the parent of Westhouse. Warburg Pincus and General Atlantic team up to A second large transatlantic deal saw U.S. private equity owns London-based stock broker firms pay around €1 billion ($1.3 billion) for 50% of Santander’sSantander businessLast year, (see Credit Wealth Suisse Management) did make one. As acquisition, part of a post-crisis of Assetasset management Management business, or 1.5% of AUM. The two Morgan Stanley’s European, Middle East and Africa wealth andpartners “participate said their in thegoal consolidation is to double in process five years taking place Dougan has been placing greater emphasis on its wealth ’s €152 billion ($196 billion) in AUM restructuring, Credit Suisse under American CEO Brady in the industry.” Currently, SAM’s business operates in management business as a more efficient use of capital 11 markets in Europe and Latin America, with about than investment banking, although the firm has been one-third of assets in Spain and 40% in Latin America deemphasizing some of its smaller wealth markets in Asia (primarily Brazil). The three partners will form a new and Africa. In fact, Credit Suisse said its private bank will quit Goldman Sachs holding company for SAM. In 2011, Warburg and two about 50 marginal markets primarily in those two regions. Deutsche Bank, with nearly $22 billion in assets under exploringother partners other took areas a 25%of cooperation. stake in Santander’s General Atlantic U.S. also supervision. The acquiredtransaction the builds U.S. stable on the value deal business Goldman of consumer loan business, and the two firms are reportedly INVESTMENT MANAGEMENT INDUSTRY REVIEW | 2014 17 made in 2012 for another stable value business, Dwight Smith Breeden Associates Asset Management of North Carolina (see Money Management). acquire fixed income specialist In a European distress sale, Canada’s Great-West Lifeco , and is in line with the firm’s effort paid €1.3 billion ($1.7 billion) for government-owned to expand its defined contribution franchise. Goldman’s defined contribution business had $55 billion in assets Irish Life Investment Managers, the largest prior to the transaction, including $34 billion in stable asset management market, Deutsche Bank said “we have Irish Life, in the process gaining €37 billion ($50 billion) in value. While emphasizing its commitment to the U.S. opted not to participate in the consolidation of the stable AUM through domestic asset manager. ILIM manages about 60% of its assets as of 2011 (the latest year for data), up 20% over AUM for institutions and the rest on behalf of the insurance value sector.” The industry had a total of $646 billion in business. The firmhas operated has carved in aIreland niche forsince itself 1903 in indexthrough and its fixed income/liability-drivenCanada Life investing. Great-West, which our long-term commitment” to the market Two other transatlantic deals of note subsidiary, said the deal “affirms West is majority owned by Power Financial involving European buyers saw Scotland’s Corp.and will, a Winnepeg-basedbe earnings accretive holding in 2014. company Great- Aberdeen Asset Management pay $180 that owns a majority of Canadian asset management giant IGM Financial and 100% million for New York’s Artio Global Investors of Putnam Investments a stake in China Asset Management and French asset manager Amundi acquire is controlled by the Desmarais in the family, U.S., as one well of as Canada’s wealthiest families. . Power fixed income specialist Smith Breeden The Irish government said the transaction Associates of North Carolina. returned to taxpayers their entire

investment in Irish Life. Great-West, which 2010. In a second and similar deal involving conservative situation in Irelandhad reviewed and Europe a purchase since that of Irishtime providedLife in assets, Goldman acquired more than $12 billion in money 2011, said the stabilization of the financial market funds from Royal Bank of Scotland, saying the the clarity the firm needed to proceed. In more evidenceSun to providing liquidity solutions on a global scale.” One-third Lifeof the Financial aggressive expansion CanadianKhazanah financial Nasional firms are last deal “emphasizes our strong and continued commitment engaging in since the financial crisis, Toronto-basedCIMB Europe. The deal comes as regulators in Europe and the Aviva Malaysiajoined. Another Malaysia’s Canadian life insurer, Manulife of Goldman’s $195 billion in money market assets are in yearFinancial to pay $600 million for Malaysian life insurer managers to use variable net asset values and hold more capitalU.S. consider against new potential rules that redemptions. would compel money market , also madeCanadian a bid Imperialfor the firm. Bank There of Commercewere three ’s $210wealth million management acquisition deals of involving Atlantic TrustCanadian Private and U.S.Wealth Sabadell bought Lloyds Banking Group’s Managementfirms, including (see Wealth Management). upfront.Spanish bankAn additional payment will be due equivalent to private banking business in Miami, paying $6 million REAL ESTATE 0.5% of the assets the bank is still managing a year after the deal closes. The acquired bank had $1.2 billion in AUM at the time of the announcement, with Sabadell suggesting a likely overall price of $12 million. Sabadell has managed the steady comeback of property markets, as the oura private presence banking in the operation Americas in and Miami to service for 20 years.international “This Tinvestorshere were who multiple both signsdrive inand Europe feed off and such the gains U.S. of acquisition significantly builds upon our promise to expand evidenced increasing bullishness. Take the rebounding Hickman, chairman of Sabadell Americas. It also builds clients from our base in Miami,” said Fernando Perez- private equity industry, for example: It raised $46 billion on negotiations the two firms engaged in that saw Sabadell for real estate funds in the first three quarters of 2013, acquire Lloyds’ Spanish business and Lloyds assume a 17% above the same period in 2012, according to Preqin. stake in Sabadell, Spain’s fifth-largest bank. In the third Activity picked up considerably after March and zeroed in quarter of 2013, Sabadell raised €1.4 billion ($1.8 billion) business last year as part of its bailout restructuring (see raiseon the capital U.S., with grew fundraising a little easier, jumping too, with 56% the between time involved March in a share offering. Lloyds also divested its Swiss wealth Wealth Management). Two other transatlantic deals of inand closing September funds fromdeclining the year-earlier from 19.8 months period. inThe 2012 effort to to Aberdeen Asset Management Artio “increasing momentum in the fundraising market and Globalnote involving Investors European and French buyers asset saw manager Scotland’s Amundi improving18.5 months appetite last year. among Preqin investors” said the fordata real demonstrates estate. pay $180 million for New York’s 18 In Continental Europe, 17% of the investment in commercial

assessmentthat the housing on data market from “is construction now 67% back starts, to existingnormal, home accordingreal estate to in CBREthe first half of 2013 was from outside the compared with just 42% one year ago.” Trulia based its outsideregion — Europe. the highest Blackstone proportion is aiming since theto raise financial as much crisis, . In 2009, just 4% of investment KKRwas from& continuedsales and delinquency-foreclosure to rebound, with analysts rates. projecting The once-toxic the highest U.S. Co. made its initial foray into Europe’s property market by commercial mortgage-backed securities market (CMBS) also as $5 billion for a European real estate fund, while Total commercial real estate investment remains well off the issuance since the financial crisis, at around $70 billion to peakacquiring levels retail that parksprevailed in the in U.K.,2007, reportedly however. for $180 million. reached$80 billion, $230 compared billion. with more than $40 billion in 2012. At the height of the real estate bubble in 2007, CMBS issuance The European initial public offering market for property Within the context of a reviving global marketplace, the real estate advisory sector generated 13 deals in 2013 and drew firms has also sprung to life, in part to compensate for a drop including BlackRock, BTG Pactual, in bank loans. In the year through September 2013, some several major andCarlyle diversified Group asset and managers TIAA-CREF as buyers,. The most

Real Estate Transactions acquire MGPA, a private equity real estate significant transaction saw BlackRock

2009 2010 2011 2012 2013 advisory firm with $12 billion in AUM in inAsia-Pacific development and andEurope. redevelopment MGPA, which Number of Transactions 6 18 11 10 13 projects,has raised joint $8.5 ventures billion in and capital, real estateinvests Combined Value ($M) $280 $960 $2,058 $230 $875 operating companies across a broad range Total Seller AUM ($B) $13.8 $79.8 $117.4 $38.9 $77.9 in BlackRock’s real estate investment Average Deal Size ($M) $47 $53 $187 $23 $67 platformof sectors. and The “creates deal nearly a truly doubles global AUM Average Seller AUM ($B) $2.3 $4.4 $10.7 $3.9 $6.0 real estate investment manager” with substantial investment teams in the Source: Berkshire Capital Securities LLC world’s top six markets. BlackRock’s existing real estate business had focused

deal is negligible within the context of BlackRock’s massive on the U.S. and U.K. markets. Although the centers$4.5 billion of activity. was raised The in$800 IPOs, billion far more Government than in any Pension year the company’s institutional clients for a broader choice Fundsince 2007,of Norway according (also to known Dealogic, as the with “oil Germany fund”), the and largest the U.K. business, the addition of MGPA does satisfy demand among sovereign wealth fund in the world, is planning to boost its Macquarie Group, with current and former management holdingof alternatives. the rest MGPA of the was equity. 56%-owned by Australia’s Carlyle acquired private equity real estate fund of funds real estate asset allocation from 1% to 5%. En route to that manager Metropolitan Real Estate Equity Management more aggressive goal, the fund paid $684 million last year for Chinese investors were notable for their moves into a share of New York City’s Times Square Tower. markets that appeared to be veritable bargains compared opportunistic(AUM: $2.6 billion), private which real estateconstructs funds. and (Vintage manages year refers residential markets were the recipient of $7.7 billion in to“vintage a private year” equity U.S., fund’snon-U.S. initial and year global of portfolios,investment, including as with the frothy one at home. The U.S. commercial and opposed to the fundraising time period.) Carlyle said the deal “strengthens our intellectual capital in global real estate” and inChinese 2012. investmentOne major dealin the saw first China’s three largestquarters residential of 2013, developer,according toChina CBRE, Vanke nearly, team 50% up above with the Tishman same period Speyer Properties is earnings accretive. Privately owned Metropolitan, based Greenland privatein New equityYork and fund founded of funds in manager2002, will AlpInvest be wrapped Partners into . Holdings Group on a $620 took milliona majority luxury stake condominium in a multi-billion- project Carlyle’s Solutions unit, where the flagship business is Dutch on San Francisco’s waterfront. Shanghai’s Diversified Global Asset Management and bought the Last year, Carlyle also acquired fund of hedge funds manager dollar mixed-use project in Brooklyn, New York. two large Dutch pension funds, ABP and PGGM (see Hedge Funds/Privateremaining 40% Equity) of AlpInvest. it did not already own from moreIn the thanU.S. residential 12% in July property over the market, previous prices year’s in period, 20 major althoughcities tracked pending by Standard home sales & Poor’s/Case-Shiller nationwide fell nearly index rose Ares Management AREA Property Partners, which has $8Los billion Angeles-based in committed alternatives capital under investor management and as6% well between as higher July mortgageand August, rates. according The chief to theeconomist National for investmentsacquired New in York’s North America, Europe and India. Ares said Association of Realtors. The culprits: those increasing prices the deal provides sponsors and investors with “the ability

INVESTMENTonline residential MANAGEMENT property firm INDUSTRY Trulia wrote REVIEW in September | 2014 19 together with Henderson’s expertise and wide array of across a broad geography within our real estate platform.” Into findits real opportunities estate business, up and Ares down targets the thecapital middle structure market and Tom Garbutt, head of TIAA-CREF global real estate and chairmanreal estate of investments the new joint in Europeventure. and The Asia-Pacific,” joint venture, said which committed capital under management, double the amount incommercial 2009, primarily segment. in its In private total, Ares debt has and $66 credit billion businesses. in launch a new business initiative in commercial real estate aims to investdebt, $1.5 including billion in co-investment the years ahead, from also TIAA-CREF. plans to Additionally, the parent companies agreed to “explore other strategic opportunities beyond The most significant transaction saw the real estate sector.” Independent global real estate investment BlackRock acquire MGPA, a private Forum Partners Investment Management and La Francaise equity real estate advisory firm with $12 management firm billion in AUM in Asia-Pacific and Europe. of Paris entered into a “strategicCredit partnership” Mutuel Nordinvolving Europe a $600 to Forum’smillion capital global commitmentsuite of realby La estate Francaise investment and parent strategies, as well as collaboration on new European investment Originally known as Apollo Real Estate Advisors, AREA was Apollo Global Management products. As part of its investment, La Francaise will part of private equity firm a business relationship for many years after. In acquiring take a 24.9% stake in Forum, an independent real estate before separating in 2000; however, the two firms maintained AREA, Ares also bought out the stake owned by National advisory firm with $5.7 billion in capital committed and Australia Bank. In a separate deal, Alleghany Corp. acquired investmentsunder advice. and La Francaisefunds. Forum has managesaround €36 its assetsbillion in($48 funds a small stake in Ares (see Hedge Funds/Private Equity). billion) in AUM, including €8 billion in real estate in direct

Regions Timberland Group from Alabama’s Regions estateand separate capabilities accounts internationally.” for institutions In a and second family European offices. FinancialBrazilian investment, which has bankingbeen divesting giant BTG its asset Pactual management acquired deal,La Francaise BNP Paribas said the Real deal Estate allows acquired it to “expand iii-investments our real , businesses. The deal establishes BTG as the largest a subsidiary of HypoVereinsbank (UniCredit Bank AG). one of the largest worldwide, with committed and invested estate and debt assets for German institutional investors, assetsindependent of $3 billion timberland and a portfoliomanager ofin 1.8Latin million America acres, and mainly includingiii-investments pension manages funds, €4.2retirement billion plans of third-party and insurance real in assets under management and administration in its fund Estate one of Europe’s top-10 real estate asset managers in the U.S. and Latin America. BTG has more than $80 billion companies. The acquisition makes BNP Paribas Real wealth division. In another cross border deal, TIAA-CREF expand its business in the region. management business and nearly $30Henderson billion in AUM Global in its (AUM: €18 billion) and reflects the company’s ambition to Investors fundbought manager, the U.S. TIAA advisory Henderson business Global of Real Estate. The and formed a joint venture with the London-based HEDGE FUNDS/ Henderson, with TIAA-CREF paying nearly $180 million for bulked-up firm will have $20 billion in AUM, primarily from PRIVATE EQUITY a 60% stake. Henderson’s U.S. business, which TIAA-CREF For Henderson, the tie-up provides a deep-pocketed acquired in whole, has $2.5 billion in AUM. partner for seeding investments, as well as for co- and managing partner of SkyBridge Capital, investments. In the post-crisis world, co-investment has Anthony Scaramucci, the gregarious founder become a particularly important prerequisite for many institutions, which want their fund managers joining them ranks among the higher-profile individuals in in putting capital at risk. “What’s been holding us back from managementthe hedge fund and industry. advisement, His 8-year-old he’s penned New two York-based books aboutfund of hedge hedge funds, funds and firm he has appears $9 billion regularly in assets on TVunder as a clients expect managers to invest alongside them, and we havegreater limited [real capitalestate] togrowth do that,” is that Henderson since the chief financial executive crisis Alternatives Conference has become one of the industry’s Andrew Formica told the Financial Times. “TIAA-CREF has best-knownmarket commentator. events, drawing Meanwhile, nearly his 2,000 annual people, SkyBridge the opposite problem with an abundance of capital.” including celebrity performers and headline politicians. For TIAA-CREF, the Henderson link delivers global capabilities while enhancing its real estate expertise. “This taken,” as he puts it. To counter that, he told The Wall StreetBut Scaramucci Journal has a problem: The lizard and duck “are and long-standing real estate investment capabilities new venture will leverage TIAA-CREF’s financial strength last May, “We’re in contact with many 20 zoologists around the world.” Has Scaramucci suddenly discovered a new philanthropic sideline for the hedge But Neuberger Berman was the most active player, as his light-hearted references to the ubiquitous mascots Dyal Capital Partners private equity fund. The seenfund incrowd? insurance Hardly. ads. The But lizard the larger and duck and inmore question serious are creationit took minority of Dyal mirrorsstakes in a five trend hedge among funds alternative through andits traditionalspecialized investors seeking stakes in hedge funds as a action last year ending the longstanding prohibition on hook into the attractive fees the manager’s charge, as well hedgereference fund is advertising.to the Securities Freed and from Exchange those constraints, Commission’s as the industry’s growth. After raising $1.3 billion from audience, saying he aims to “hit every medium that I can Scaramucci is prepared to expand his pitch to a larger 40 institutional clients over a two-year period, Dyal made three rapid-fire investments in December 2012 in pursuit anpossibly annual hit.” income (In relaxing of $200,000 its rules, and thea net SEC worth maintained of at least of its goal of creating a portfolio comprising 12 to 15 $1traditional million, excludingthresholds primary for potential residence.) hedge fund investors: institutional firms diversified by geography and strategy. Dyal took in Halcyon Asset Management A lot of other less well-known hedge fund managers The largest deal last year by AUM involved the 20% stake hold the same ambitions. In assessing the market, evenly split between hedge funds and bank, aloan New strategies. York- Citigroup Halcyon’sbased multi-strategy hedge funds firm pursue with merger, $13 billion credit in assets,and special about

Existing hedge figures fund retail-focused, managers seeking liquid newalternative investors assets are expectedin the U.S. to could drive nearly much triple of that to growth. $770 billion But traditional by 2017. 2013.situation A second investments. deal involved The firm, MKP established Capital Management in 1981, , an fund managers will also play an important role as they 18-year-oldregistered around specialist 30% in growth global macroin AUM and between credit 2011strategies and seek more profitable investment vehicles to compensate with $7 billion in AUMtold Pensions and a recent & Investments track record the for deal rapid Hedge Fund/Hedge Fund of Funds Transactions providesgrowth. Majority him with owner the opportunity Patrick McMahon to pare of the proceeds to facilitate an increase in equitydown his among stake partners. in the firm The and three use other some 2009 2010 2011 2012 2013 Number of Transactions 10 20 14 23 19 of more than $8 billion and included Combined Value ($M) $201 $2,792 $873 $892 $755 Capstonefirms, all U.S.-based, Investment had Advisors aggregate, which AUM Total Seller AUM ($B) $19.7 $125.0 $42.9 $60.5 $71.1 Scopia Fund Management, a long/short Average Deal Size ($M) $20 $140 $62 $39 $40 specializes in volatilityWaterfall arbitrage Asset strategies; Average Seller AUM ($B) $2.0 $6.3 $3.1 $2.6 $3.7 Management, a structured credit and wholeequity loansinvestor; strategist. and Source: Berkshire Capital Securities LLC

Dyal reportedly paid $60Capstone million Vol for fund. its for the growth of lower-margin index and exchange In a 2010 interview20% with stake Risk.net, in Capstone Capstone (AUM: founder $2.4 billion),and traded funds. In 2013, for example, Fidelity Investments noted for its flagship opened up the Blackstone Alternative Multi-Manager mix of intuition and algorithms. “The human element of tradingCEO Paul is Brittonincredibly said important, the firm’s buttrading it is modelnot everything,” plays off a Pimco said Britton, who began his career as a bond options alsofund indicated of hedge fundslast year for thatsale itto planned mass affluent to expand investors its alternativesvia its Portfolio business Advisory with Service retail investors platform. in mind. Options Exchange. “Quantitative techniques help traders to As hedge funds continue the evolution that has seen maketrader better on the decisions, London International while good information Financial Futures technology and them expand from an investment vehicle for the wealthy is needed to effectively execute those ideas.” Neuberger to a core holding for institutions to a component in registered 19 deals last year, broadly in line with recent wassplit 72%from employee-owned, parent Lehman Brothers with the in goal 2009 of tohaving become 100% an the portfolios of mass affluent investors, the industry employeeindependent ownership company. within As of fourthe first years. quarter of 2013, it as it cut a “strategic partnership” with Woori Investment Man Group &trends. Securities SkyBridge Capital was itself in the marketplace, million ($2.1 million) investment for a 20% stake in OFI LondonMGA hedge fund giant made a small €1.6 Asia. Woori, part of South of giant Korea Woori for theFinancial distribution Group of, will asset manager OFI Group SkyBridge products in that country and elsewhere in majority, the shareholding alternative investment within three subsidiary years. The of Paris-basedinvestment said the deal “underscores our commitment to provide is part of a larger strategic. partnershipMan has the thatoption will to see take OFI a alpha-centricalso invest in onehedge of SkyBridge’sfund solutions fund to ofa broad, funds. globalSkyBridge investor base.” has $9 billion invested with some 80 alternative asset MGA take part in Man’s managed account platform, which INVESTMENT MANAGEMENT INDUSTRY REVIEW | 2014 21 macroeconomic and political decision-making in the short and intermediate term” in which “‘events’ have managers. OFI MGA manages more than €600 million investmentfor French institutions solutions tailored while OFI to French Group hasinstitutional €54 billion TPG Special ($72 billion) in AUM. The deal allows Man to “provide Situationsbecome more Partners and more difficult to effectuate and andanalyze.” special TPG’s situations deal was platform. done through diminishedinvestors’ needs.” performance Last year, at theEmmanuel company. Roman In particular, took , a $6 billion opportunistic credit Carlyle Group joined the private equity buyers, over as Man’s new chief executiveAHL following, has seen years assets of acquiring Toronto fund of funds manager Diversified Global Asset Management for $33 million, with an Man’s flagship quantitative fund, additional payout of $70 million possible based on Neuberger Berman was the managementperformance. andDGAM, advice an institutional over the past firm three founded years to in most active player, as it took 2004, has been growing rapidly, doubling assets under of hedge funds platform and complements its private minority stakes in five hedge equity$6.7 billion. and real Carlyle estate said fund DGAM of funds will servecapabilities. as its fund “We are focused on providing fund investors with a broad funds through its specialized suite of investment options under one roof,” Carlyle Dyal Capital Partners private of funds manager Metropolitan Real Estate Equity equity fund. Managementsaid. Last year, (see Carlyle Real also Estate) acquired and added real estate to its fundholding AlpInvest Partners (see below). in private equity fund of funds firm Franklin Resources purchased the 80% of hedge fund Pelagos Capital Management that it did not already own, saying it made the move “after seeing growing drop by more than half from a peak of $25 billion in 2011. interest from investors” in alternatives. The company In response, the company has launched a reorganization of the AHL unit that includes new quant funds and new restructuringhires. In October, charge. with AHL’s performance continuing inacquired commodities its original and managed20% stake futures, in the Bostonand also firm has in a to deteriorate, Man also announced a $90 million 2010. Formed in 2005, Pelagos pursues investments Another alternatives marquee name, KKR & Co., acquired have already been available to Franklin’s customers as Nephilia Capital underlyinghedge fund investmentsreplication strategy. in Franklin-branded Pelagos’ strategies products, a specialist in reinsurance investments related to natural such as the Franklin Templeton Multi-Asset Real catastrophe24.9% of hedge and fund weather risks. For investors,(AUM: Nephilia’s$8 billion), Return Fund. The deal builds on Franklin’s 2012 products have particular appeal as uncorrelated assets. acquisition of K2 Advisors Holdings, at the time a top- 20 fund of hedge funds manager. KKR and Nephilia have a relationship dating back 15 Mariner Investment Group years, when Nephilia was part of a KKR portfolio company. Japan’s Orix Corp., extended its hedge fund business KKR acquired part of the stake from Man Group, which with the acquisition of Concordia of New Advisors York, owned by infrastructurepurchased 25% and of Nephiliamanagement in 2008. expertise The Bermuda-based will open $1 billion), a 20-year-old relative value investor in upcompany new doors said forKKR’s Nephilia “global and network our investors.” of relationships, The deal interest rates, credit and equities that manages (AUM: several many years in a hedge fund and expands its portfolio of Mariner Incubation Fund, a represents the second investment KKR hasPrisma made in Capital as multi-strategycommingled funds fund and that separate will be managed accounts. by Last a variety year, of Partners, providing it with entry to the fund of hedge Mariner also launched the such products. In 2012, the firm acquired established hedge fund managers and gives Mariner “a funds sector. In its latest full year of 2012, KKR’s Public multi-strategynew, efficient structure hedge funds, for incubating fund of funds new and managers.” other Markets unit, made up mostly of hedge funds and fund Mariner has more than $10 billion in AUM in single and of funds, had $26.4 billion in AUM, double the amount in Texas private equity giant TPG 2008 and representing one-third of total AUM. alternatives. When Orix acquiredRobeco the asset firm managementin 2010, it set stake” in several defunct Octavian Advisors unita goal of of Rabobank doubling AUM(see Cross to $20 Border) billion. within five years. acquired a “significant hedge funds and will serve as general partner and Last year, Orix acquired the The acquisitive and ambitious Canadian asset manager global distressed and activist investor, announced in Fiera Capital Corp. bought absolute return hedge funds theinvestment last quarter manager. of 2012 Octavian, that it wasa New shutting York-based down due to underperformance. In a letter to investors at the Toronto-based GMP Investment Management. Fiera paidwith C$10.8C$570 millionmillion, ($580 and will million) tack on in theAUM equivalent managed ofby bemoaned a “market that is driven almost entirely by time, Octavian chairman and CEO Richard Hurowitz 22 25% of performance fees based on the acquired assets over a three-year period. The investment teams from estate investment trust portfolio.) Hatteras distributes new subsidiary that Fiera created to manage the funds. FieraGMP willsaid join the Fieradeal expands as part of its the alternative deal, operating strategies, in a “an a diverse group of retail fund of funds through financial advisors. RCAP, which began trading on the New York momentum over the past few years in the North constitutedStock Exchange the “deploymentlast June, is particularly of a majority focused of the on investment area that has been experiencing significant the mass affluent market. The firm also said the deal (see Wealth Management). American marketplace.” Last year, Fiera also acquired proceeds” from its $50 million initial public offering. Principal Financial, an active acquirer of boutiques, two U.S. wealth managers Hatteras adds a new line to RCAP’s existing businesses, stepped into the alternatives universe last year to take a which include a wholesale broker-dealer; an investment Liongate Capital Management banking and capital markets unit; a transaction The private equity industry logged a solid year as it management services provider; and a transfer agent. 55% stake in , a London- continues to place more distance between itself and the and New York-based fund of hedge funds manager with $2.1 billion in AUM. The deal marked the Iowa insurer’s andfirst distributionpurchase of networka fund of whilefunds providingmanager. Liongatesupport for said damages wrought by the financial crisis. Mergers and the relationship with Principal will extend its footprint ofacquisitions 2013, according involving to Thomson private equity Reuters, firms accounting rose 16% for to $246 billion year over year in the first three quarters thanproduct competitors development. in switching The 9-year-old managers firm favors mid- basedsize and on niche changes managers in markets and isand generally more active 14% of global deals. Global fundraising jumped 20% economies. But like many fund of funds Private Equity Fund Transactions broadlymanagers, question Liongate the has industry’s experienced value a drop in AUM in recent years, as investors 2009 2010 2011 2012 2013 Number of Transactions 6 12 5 9 9 proposition. In 2011, the firm opened a New York office as part of a bid to attract Combined Value ($M) $871 $2,403 $464 $575 $834 more U.S. institutions. Principal’s AUM Total Seller AUM ($B) $3.6 $54.5 $65.8 $31.6 $55.4 has climbed from $247 billion to more The consolidating fund of funds industry Average Deal Size ($M) $145 $200 $93 $64 $93 than $450 billion since 2008. registered one other small transatlantic Average Seller AUM ($M) $594 $4,543 $13,158 $3,511 $6,158 deal, as Morgan Creek Capital Management of North Carolina acquired Source: Berkshire Capital Securities LLC Signet Capital Management, a

London’s during the same period to $311 billion, according to calledfixed income the transaction specialist “a with major $700 achievement” million in its effortin AUM. to Morganexpand globallyCreek (AUM: “and $6.5address billion) the increasingly third quarter dropped to the lowest level in six years, complex global investment environment.” The 10-year- suggestingPreqin, although that investors the number are of“increasingly funds closed looking in the to place more capital with larger and more established old firm, founded by the former chief investment officer the second quarter, calling that pace the strongest onfor assetthe University allocation of as North the “primary Carolina, driver Mark ofYusko, return.” says it managers.” Accordingly, Carlyle raised $6.9 billion in “embraces the Endowment Model” of investing focused income investments as well as alternatives, including since 2008, while KKR raised $6 billion for its second Morgan Creek manages traditional equity and fixed Asian buyout fund and delivered a 60% increase in introduced a hedge fund for retail investors, Morgan profits in the third quarter. Private equity companies Creekhedge funds.Tactical In Allocationthe third quarter,. the institutional firm worldwide have also been capitalizing on low interest RCS Capital Corp. acquired rates to refinance debt at record levels at their affiliated 10-year-old Hatteras Funds Group companies ($110 billion as of mid-September, according anIn aearly U.S. fundentrant of fundsin the deal, liquid alternatives market. In to S&P Capital IQ). At the same time, the industry (AUM: $2 billion), numberretains a at significant $789 billion level as of of capital November. in search of worthy executive chairman and noted real estate investor investments, with Preqin placing that “dry powder” an interview with WealthManagement.com, RCAP Within the industry, there were a number of important fund track record and quality, we are going to be able new regulations by divesting their private equity arms. toNicholas really helpSchorsch them said, grow “By this adding platform our exponentially.” scale and their Thedeals biggest last year, news as financialcame out firms of Europe, continued where to French respond to Cole Real insurer AXA spun off its $31 billion private equity unit Estate Investments via his American Realty Capital as part of a management buyout. The buyout group Properties(Separately, Schorsch will pay $11.2 billion for

, thereby expanding significantly his real INVESTMENT MANAGEMENT INDUSTRY REVIEW | 2014 was led by CEO Dominique Senequier, who helped 23 found and drive AXA Private Equity into one of the

investor. The partnership includes $85 million in Continent’s largest private equity firms. In recent years, Blackstoneseed capital, part of Grosvenor’sStrategic fledgling Partners“Emerging AXA Private Equity has also been picking up assets in unit,Manager” with program.$9 billion Inin thesecondary second privateCredit Suisse equity deal, funds. the secondaries market, including from other financial acquired the firm’s equityservices portfolios firms engaged from Barclays in restructuring. and Citigroup In 2011, while for and acquired a Morgan Stanley wealth business (see example, the company acquired $2.4 billion in private CrossSeparately, Border Credit and Wealth) Suisse divested. two other businesses HSH Nordbank. taking a majority stake in the $840 million portfolio of Additional buyout investors included other senior not already own in Dutch private equity fund of funds Carlyle acquired the remaining 40% in equity it did Carlyle will use shares as the primary currency in the managers, institutions and French family offices. deal,firm AlpInvestvalued at Partnersaround $88 (AUM: million. €37 Inbillion/$48 2011, Carlyle billion). made AXA retained a 27% share, with AXA Private Equity its initial investment in AlpInvest as part of an effort to

The biggest news came out of Aberdeen Asset Management broaden its investor base and product mix. In the U.K., Europe, where French insurer SVG Advisers. The company said paid the £17.5 transaction million ($24 ismillion) consistent for a with 50.1% its stake“strategy in fund of acquiring of funds managersmaller AXA spun off its $31 billion business to enhance and accelerate the Group’s own SVG Capital, a private equity unit as part of a organic growth.” SVGA, which was part of management buyout. andpublicly advice traded to Aberdeen’s London-based small private existing equity private firm, equity adds business.£4 billion Aberdeen($5.4 billion) has inthe assets option under to acquire management the rest of the business after three years for a price between

acquired Scottish Widows Investment Partnership and£20 Artiomillion Global and £35 Investors million. Last year, Aberdeen also million),management with taking AXA receiving 40% and total outside consideration investors 33%.of nearly manager (see Money Management). The transaction valued the firm at €510 million ($680 , a New York fixed income consideration subject to meeting certain targets and markets specialists, Rohatyn Group and Citi Venture €488 million, of which up to 30% will be in deferred CapitalIn an all-U.S. International deal involving combined two private to create equity what emerging they entrepreneurialism at the heart of what we do and called “a premier emerging markets asset management buildconditions. a platform Senequier for new said opportunities the new structure and broader will “keep company.” The company will operate under the horizons.” AXA said it will continue to invest in the andRohatyn committed name with capital, $7 billionwas part in AUMof Citigroup, and 18 officeswhich newly independent firm’s funds, with an expected total hasworldwide. divested CVCI, nearly with all $4.3of its billion alternative in equity businesses. investments rebrandedcommitment as ofArdian €4.8 billion. ($6.6 billion) between 2014 and 2018. AXA Private Equity was subsequently Credit Suisse, divested investment holding company Alleghany Corp. two private equity units as it continues to adjust its In a second U.S. transaction, Aresproperty Management and casualty and businessAnother majormodel. European In the larger firm, of the deals, Grosvenor committed up to $1 billion more in investment paidcapital, $250 Capital Management allmillion part forof a a bid 6.25% “to participate stake in in Ares’ strong business Customized Fund Investment Group, with $18 billion prospects and to enhance the returns of its committed of Chicago acquired Credit Suisse’s capital through Ares’ alternative asset expertise.” Ares group was subsequently rebranded under the Grosvenor in AUM in third-party funds and 11 global offices. The while extending its platform beyond hedge funds for its awayhas $66 from billion its property in committed and casualty capital underconcentration. management. Abu institutionalname. For Grosvenor, clientele. the One deal of the adds largest significant fund of scale hedge DhabiFor Alleghany, Investment the deal Authority provides also some holds diversification a minority stake in Ares. x portfolios.funds managers, Analysts Grosvenor speculate had that $23 the billion deal mightin AUM also set prior to the deal, with nearly two-thirds in customized go public. the stage for a larger and more diversified Grosvenor to Grosvenor, which is 30% owned by asset manager investor Hellman & Friedman, struck a second deal creating a “strategic partnership” with Continuum Investment Management

24 , a structured fixed income About Berkshire Capital Partners

Berkshire Capital is an independent employee-owned investment bank specializing in M&A H. Bruce McEver R. Bruce Cameron Caleb W. Burchenal (212) 207 1001 (212) 207 1013 (303) 893 2899 [email protected] [email protected] [email protected] in the financial services sector. With more completed transactions in this space than any other investment bank, we help clients find successful, long lasting partnerships. Richard S. Foote Robert P. Glauerdt T ed J. Gooden Founded in 1983, Berkshire Capital is headquartered in New York with partners located in (212) 207 1012 +44 20 7828 0024 (212) 207 1043 Philadelphia, Denver, London and Sydney. Our partners have been with the firm an average [email protected] [email protected] [email protected] of 12 years. We are recognized as a leading expert in the wealth management, money management, alternatives, real estate and broker/dealer industries. We believe our success Bomy M. Hong John H. Humphrey D. Scott Ketner as a firm is determined by the success of our clients and the durability of the partnership we (212) 207 1825 +44 20 7828 2211 (212) 207 1042 help them to structure. [email protected] [email protected] [email protected]

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